This study investigates the relationship between different sorts
of risk and return on six Finnish value-weighted portfolios from the year 1987 to
2004. Furthermore, we investigate if there is a large equity premium in Finnish market.
Our models are the CAPM, APT and CCAPM. Forthe CCAPM we concentrate on the
parameters of the coefficient of the relative risk-aversion and the marginal
rate of intertemporal substitution of consumption, whereas for the CAPM we
estimate the market beta and for the APT we will select some macroeconomic
factors apriori. The main contribution of this study is the use of General
Method of Moments (GMM). We implement it to all of our models. We conclude that
the CAPM is still a robust model, but we find also support for theAPT. In
contradiction to majority of studies, we are able to get theoretically sound
values for the CCAPM’s parameters. The risk-aversion parameters stay below two
and the marginal rate of intertemporal substitution of consumption is close to
one. The market beta is still the most dominant risk factor, but the CAPM and
APT are as good interms of explanatory power.
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