equity risk premium

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Equity Risk Premium

The return that an investor expects over and above the risk-free rate of return in exchange for investing in common stock instead of U.S. Treasury bonds. The equity risk premium may be calculated as the return such a stock actually earns over a given period. For example, if the interest rate on a Treasury bond is 4% and the stock returns 9%, the equity risk premium is 5%. Whether or not this is worth the investment depends on the cost of the stock, the risk relative to other stocks with similar returns, and the investor's own risk aversion. The equity risk premium is also called simply the equity premium.

equity risk premium

The extra return expected from investments in common stocks compared to the return from U.S. Treasury securities.
References in periodicals archive ?
Although a weaker dollar can be positive for corporate earnings and lower rates can be favourable for corporate borrowing, equity risk premiums remain wide because of the uncertainty expressed by low bond yields and negative term premiums.
This approach seems to better reveal global factors than regressions on single stocks and enables equity risk premiums for countries to be assessed separately.
Yields have been at 0% or negative for years now across most developed markets, and to assume that high-yield bond and equity risk premiums as well as P/E ratios have not adjusted to this Star Trek interest rate world is to believe in - well to believe in Zeno's paradox," writes Gross, referring to the writings of a Greek philosopher.
Extraordinary accommodative policies from major Central Banks of Advanced Economies since the Global Financial crisis have contributed to a compression of risk premiums across a range of markets including sovereign bonds and corporate credit, as well as a compression of liquidity and equity risk premiums.
This is not a coincidence -- financial engineers cannot create something out of nothing -- markets laws (risk free rates, equity risk premiums, options pricing etc) apply to structured products as well.
We see continued support for the UAE banks from the strong dividend outlook and enhanced asset quality and liquidity, accompanied by a surge in lending (Expo 2020 to add 1 per cent pa), increased FOLs, MSCI inclusion and a reduction in very high equity risk premiums.
We see continued support for the UAE banks from the strong dividend outlook and enhanced asset quality and liquidity, accompanied by a surge in lending (Expo 2020 to add one per cent pa), increased FOLs, MSCI inclusion and a reduction in very high equity risk premiums.
We see continued support for the UAE banks from the strong dividend outlook and enhanced asset quality and liquidity, accompanied by a surge in lending (Expo 2020 to add one per cent per annum), MSCI inclusion and a reduction in very high equity risk premiums," said Arqm.
The recent rally was primarily driven by a justified reduction in equity risk premiums and we feel that the continuous improvement in earnings growth prospects of companies will provide the next major trigger for markets.
Equity risk premiums (ERP), calculated as the trailing earnings yield minus the yield on 10Y US Treasury bonds, have in certain major developed markets reached close to historic levels, suggesting that equities are now at attractive levels relative to bonds.
A rise in the inflation rate can lead to an increase in equity risk premiums that could depress the equity markets.
Equity Risk Premiums (ERP): Determinants, Estimation and Implications.