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 ?
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.
There were a lot of explanations why equity risk premiums were as high as they were and speculation they need to be adjusted downward.
Prior to tackling the issue of equity risk premiums in Central Europe, it needs to be understood that the financial crisis is a global phenomenon affecting more than just the region.
Equity risk premiums are typically not estimated with econometric tools but rather by making various assumptions on an underlying financial model, then calculating long-run averages of its parameters.
Part I also includes an article on equity risk premiums, and two on quantifying various valuation discounts.
Several studies published in recent years support an inverse relationship between utility equity risk premiums and interest rates during the first half of the 1980s.