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 ?
Households that do not participate in the equity market forgo the large equity premium.
Policy Billing Services and Equity Premium Finance founder, Stuart Bruce, and his experienced management team have served the Canadian market with first class service.
In particular, we successively consider the equity premium estimated according to the Gordon and Gordon (1997) finite-horizon growth model ([RP.
Nuveen Equity Premium and Growth Fund (NYSE: JPG) Nuveen Equity Premium Income Fund (NYSE: JPZ) Nuveen Equity Premium Opportunity Fund (NYSE: JSN) Nuveen Equity Premium Advantage Fund (NYSE: JLA)
3 percent (if the equity premium matched its average) to -78.
Treasury note plus an equity premium minus the dividends the company pays.
Bansal and Yaron apply this model to stocks and provide a new story for the equity premium.
These days, there is a private equity premium and when the time comes to sell or go public measures such as this will help.
Coverage includes an introduction to modern asset pricing, the authors' new structural theory and its application to the equity premium puzzle, use of the structural theory to deal with an enlarged portfolio space that includes non-tradable assets, discussion of asset pricing problems including both bottom-up and the top-down investment methodologies, and the relationship of the portfolio insurance with option and consumption-based asset pricing models.
The impacts of the crisis on equity markets is captured by a rise of 400 basis points for two years in the equity premium in (2).
The similarity to the TSX index is not coincidental and comes from the favourable interest-rate environment and declining equity premium, which affects identically the value of the TSX index and the Trill.
d, shocks and Epstein-Zin-Weil preferences accords with the observed average equity premium of around 7 percent on levered equity, using a coefficient of relative risk aversion of 3.