B2 Non-refereed book chapter or chapter in a compilation book
A note on the calculation of the risk free rate for tests of asset pricing models and event studies
Authors: Mika Vaihekoski
Editors: Johan Knif, Bernd Pape
Publishing place: Vaasa
Publication year: 2014
Book title : Contributions to Mathematics, Statistics, Econometrics, and Finance: Essays in Honour of Professor Seppo Pynnönen.
Series title: ACTA WASAENSIA
Number in series: 296
First page : 291
Last page: 306
Number of pages: 16
ISBN: 978-952-476-522-0
eISBN: 978-952-476-523-7
ISSN: 0355-2667
Web address : http://www.uva.fi/materiaali/pdf/isbn_978%E2%80%93952%E2%80%93476%E2%80%93523%E2%80%937.pdf
The risk-free rate has a special role in finance theory. It is the key parameter in most asset pricing models and companies’ cost of capital calculations. It is the reference point for risky asset returns, and as such, asset pricing models are typically tested using excess returns. In event studies, it is used when abnormal returns are measured using the excess market model.
