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The Price of Risk: With Equity Risk Premiums, Caveat Emptor!

Musings on Markets

If you have been reading my posts, you know that I have an obsession with equity risk premiums, which I believe lie at the center of almost every substantive debate in markets and investing. That said, I don't blame you, if are confused not only about how I estimate this premium, but what it measures.

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Risk Premiums: A Look at CSRP

BVR

Company-specific risk is not an ideal name for this risk. All firms face company-specific risks, many of which are somewhat similar across industries and companies. For example, how many firms have you valued that had to deal with the risk of customer concentration? Is anything “company-specific” per se?

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What Is Equity Risk Premium?

Andrew Stolz

Definition of Equity Risk Premium. It is the difference between expected returns from the stock market and the expected returns from risk-free investments. What Impacts the Equity Risk Premium? How Do You Calculate Equity Risk Premium? Why is the Equity Risk Premium Important?

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Understanding the Company-Specific Risk Premium: A Guide for Attorneys

Gross Mendelsohn

Understanding risk factors is essential in determining how a business will be valued. Let’s consider what your business-owning clients need to know about company-specific risks and how they come into play when it’s time for a business valuation.

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Country Risk: A 2022 Mid-year Update!

Musings on Markets

Country Risk: Equity Risk For equity investors, the price of risk is captured by the equity risk premium, and equity risk premiums will vary across countries. Please do not attach any political significance to my country groupings, or take them personally.

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Data Update 2 for 2023: A Rocky Year for Equities!

Musings on Markets

The premium that investors demand over and above the risk free rate is the equity risk premium , and practitioners in finance have wrestled with how best to estimate that number, since it is not easily observable (unlike the expected return on a bond which manifests as a current market interest rate).

Equity 93
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Data Update 2 for 2022: US Stocks kept winning in 2021, but…

Musings on Markets

In computing this implied equity risk premium for the S&P 500, I start with the dividends and buybacks on the stocks in the index in the most recent year (which is known) and assume that they grow at the rate that analysts who follow the index are projecting for the next five years.