Sensitivity, Moment Conditions, and the Risk-free Rate in Yogo (2006)
Critical Finance Review, Vol.6 No.2 2017
14 Pages Posted: 22 Oct 2016 Last revised: 14 Nov 2018
Date Written: November 4, 2016
In this paper we show that results presented in the seminal paper by Yogo, A Consumption Based Explanation of Expected Stock Returns, cannot be replicated. We find different estimates for the parameters and we obtain values of over-identified statistics that being much larger than those in the original paper indicate rejection of the durable consumption asset pricing model. By careful inspection of Yogo’s replication files, we were able to track down the inconsistency to a coding bug. The rejection of the durable model is exemplified by its inability to simultaneously explain the risk-free rate and excess stock returns.
Keywords: nonlinear GMM estimation, equity premium, durable model, yogo, gauss
JEL Classification: G12, C58
Suggested Citation: Suggested Citation