Nicola Borri and Giuseppe Ragusa, “Sensitivity, Moment Conditions, and the Risk-free Rate in Yogo (2006).” Critical Review of Finance, 6(2):281-293


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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.

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