Equity Risk Premiums: Determinants, Estimation and Implications - The 2020 Edition

ArXiv ID: ssrn-3550293 “View on arXiv”

Authors: Unknown

Abstract

No abstract found

Keywords: No abstract found, Unknown

Complexity vs Empirical Score

• Math Complexity: 5.0/10
• Empirical Rigor: 7.0/10
• Quadrant: Street Traders
• Why: The paper centers on the estimation of the equity risk premium using established financial models (CAPM, Gordon Growth), involving algebraic and present value formulas, but focuses heavily on practical, data-driven applications like historical returns analysis, survey methods, and implied premium calculations using market data from sources like Moody’s and PRS Group.

  flowchart TD
    A["Research Goal: Determine, Estimate, and Imply Equity Risk Premiums"] --> B["Data/Inputs: Historical Market Returns, Bond Yields, Economic Indicators"]
    B --> C["Methodology: Decompose ERP into Risk-Free Rate + Risk Compensation"]
    C --> D["Computational Process: Historical & Forward-Looking Estimation"]
    D --> E["Key Finding 1: ERP is dynamic, varying with economic conditions"]
    D --> F["Key Finding 2: Valuation metrics (CAPE, Dividend Yield) are key determinants"]
    D --> G["Key Finding 3: ERP is sensitive to interest rates and inflation"]
    E --> H["Outcomes: Framework for future ERP prediction & valuation"]