equity risk premium


Also found in: Acronyms.

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 ?
The greater the uncertainty, the higher the equity risk premium.
How inflation risks affect stock prices?
Comparing the equity risk premium of the US market with the one of the Euro zone shows that the US is well below its long- term average (at 3.
NEWS & ANALYSIS
f] is the risk-free reference rate in a developed country, MMERP is the mature market equity risk premium, [[beta].
Cost of capital in emerging markets: bridging gaps between theory and practice
1) Can multifactor models be used for explanation of the equity risk premium for global indices?
Cross-sectional returns with volatility regimes from a diverse portfolio of emerging and developed equity indices
If we fix t, and let k vary, we trace the term structure of the equity risk premium.
The equity risk premium: a review of models
This stellar stock market rally was made possible by increased capital flows into Europe, a valuation rerating and a fall in the equity risk premium.
The bullish case for European equities
While we do not observe a negative equity risk premium during the sample period, the TP and the VP_VIX occasionally became negative.
Should monetary policy monitor risk premiums in financial markets?
Thus, in summary, a firm's cost of equity capital depends on the risk free rate--the higher this is, the higher the opportunity cost to the investor of assuming the risks of holding equities--and firm i's equity risk premium, which measures the sensitivity of firm i's returns to the market-wide systemic risks.
The opportunity cost of capital: Development of new pharmaceuticals
Given the upgrade to the MSCI EM Index and the relatively stable risk profile of several Qatari firms, we have opted to reduce our equity risk premium estimate.
Outlook mixed for Q2 earnings of Qatari stocks under coverage
5) The five years since the onset of the Great Recession stand out not only because of the exceptionally low real rate of interest, but also because of a historically high equity risk premium.
How can consumption-based asset-pricing models explain low interest rates?
The long-term (114-year) equity risk premium for a US investor in emerging markets was 3.
Emerging market equity performance suffers setbacks
Thus, we have decreased our equity risk premium by 154bps to reflect the lower concerns.
Broadband, corporates key to Saudi telecom growth
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