Identifying Proxies for Risk-Free Assets : Evidence From the Zero-Beta Capital Asset Pricing Model

This research offers the first analysis of whether gold, treasury bills, Overnight Index Swaps (OIS), or Interbank Offered Rates (IBOR) can be used as proxies for risk-free assets in the UK, the US, China, Japan, and India. Using Black’s (1972) zero-beta capital asset pricing model, we apply the Wald and likelihood ratio tests to examine whether gold, T-bills, OIS, or IBOR qualify as zero-beta or risk-free assets against companies in the FTSE 350, S&P 500, SSE 180, NIKKEI 225, and SENSEX. We find that gold is a proxy for the risk-free asset in the UK and China; T-bills are a proxy in Japan, and IBOR are a proxy in China. None qualifies for the US market. According to our results, there is no universal risk-free asset for the UK, the US, China, Japan, and India