Evidence of a risk-free rate puzzle in the Brazilian economy
Published:
Jun 11, 2026
Volume:
24
Keywords:
Risk-free rate
Stochastic discount factor
Risk-free rate puzzle
Abstract
The risk-free rate is conceptually relevant in several applications in finance and macro-finance. While many theoretical studies assume a constant risk-free rate and empirical studies often use short-term government bond returns as a proxy, there is evidence against these practices. This article estimates a risk-free rate for Brazil from the fundamental asset pricing equation using a stochastic discount factor. Different econometric approaches are employed, and the estimated rates are compared with the DI rate, the main benchmark for the risk-free rate in Brazil. The DI rate and the estimated rates diverge during a substantial part of the sample, from 2002 to 2022, suggesting the existence of a risk-free rate puzzle in the Brazilian economy.
How to cite
Rafael Nogueira do Prado, Alex Luiz Ferreira. Evidence of a risk-free rate puzzle in the Brazilian economy. Brazilian Review of Finance, v. 24, n. 1, 2026. p. e202609. DOI: 10.12660/rbfin.v24n1.2026.97841.
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