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 ?
In the United States, a majority of households do not invest directly in equity despite the sizable historical equity premiums. Even for those who participate in the equity market, most do not frequently adjust the composition of their portfolios, regardless of the large countercyclical variation of Sharpe ratios (SRs) in the equity market.
To match the large equity premium (7.53 percent) measured in postwar U.S.
Based on the current efforts within the European Union, the purpose of this article is to analyze the effects of introducing insurance guaranty scheme systems in a market with established equity premiums. In order to ensure practical relevance, we first update the overview of existing guaranty funds in the European Union given by Oxera (2007) and extend the analysis internationally, to include in particular the systems existing in the U.S., Canada, Japan, and Korea.
Mert Tarlan from UniCredit said in the last 2 to 3 years, the number of transactions has increased as equity premiums came down and clients began paying attention not only to the value of the transaction but the value added as well.
"Equity premiums in the region are rising to take into account increasing political risk," said Majed Azzam, AlembicHC real estate analyst in Dubai.
Mr Greenspan said the market value of assets has been rising faster than gross domestic product growth due to a significant decline in real equity premiums and the decline in real long-term interest rates.
(14) The total number of observations used for the computation of the 6-month and 12-month expected equity premiums are 558 and 531, respectively.
Because the real riskless rate of return apparently did not change much during that five-year period, anything short of such an extraordinary permanent increase in the growth of structural productivity, and thus earnings, (4) implies a significant fall in real equity premiums in those years.
However, equity premiums imply that marginal utility growths vary much more, by at least 50 percent per year.
However, equity premiums imply that marginal utility growth varies much more, by at least 50 percent per year.
In combination with the agent's loss-aversion, the high volatility of returns generates large equity premiums.
Thaler, NBER and University of Chicago, and Ming Huang, Stanford University, "Individual Preferences, Monetary Gambles, and the Equity Premium: The Case for Narrow Framing"