Cost of Equity

Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2013 Edition ArXiv ID: ssrn-2238064 “View on arXiv” Authors: Unknown Abstract Equity risk premiums are a central component of every risk and return model in finance and are a key input in estimating costs of equity and capital in both cor Keywords: Equity Risk Premiums, Cost of Equity, Risk and Return Models, Capital Budgeting, Corporate Finance, Equity Complexity vs Empirical Score Math Complexity: 5.0/10 Empirical Rigor: 3.0/10 Quadrant: Lab Rats Why: The paper discusses theoretical risk-return models (like CAPM and multi-factor models) which involve mathematical formulas, but the excerpt shows conceptual explanation rather than dense derivations. Empirical rigor is low as it focuses on conceptual discussions, historical data limitations, and forward-looking estimates without providing backtesting, code, or implementation-heavy datasets. flowchart TD A["Research Goal<br>Determine & estimate the Equity Risk Premium (ERP)<br>for corporate finance & valuation"] --> B["Key Inputs & Data<br>• Historical Market Returns (Equity & Bonds)<br>• Implied ERP from Valuation Models<br>• Macroeconomic Factors (Inflation, Interest Rates)"] B --> C["Methodology<br>1. Historical Approach<br>2. Forward-Looking/Implied ERP<br>3. Macroeconomic Determinants"] C --> D["Computational Process<br>• Estimate Historical ERP<br>• Forecast future ERP<br>• Adjust for risk & macro conditions"] D --> E["Key Findings & Outcomes<br>• ERP varies over time (not constant)<br>• Influenced by macroeconomic factors<br>• Crucial for Cost of Equity & Capital Budgeting"]

Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2015 Edition ArXiv ID: ssrn-2581517 “View on arXiv” Authors: Unknown Abstract Equity risk premiums are a central component of every risk and return model in finance and are a key input in estimating costs of equity and capital in both cor Keywords: Equity Risk Premiums, Cost of Equity, Risk and Return Models, Capital Budgeting, Corporate Finance, Equity Complexity vs Empirical Score Math Complexity: 6.0/10 Empirical Rigor: 4.0/10 Quadrant: Lab Rats Why: The paper introduces advanced financial models like CAPM and multi-factor models with formulas, indicating moderate math complexity. However, it focuses on conceptual frameworks and theoretical estimation approaches (historical, survey, implied) without providing specific backtests, code, or detailed empirical datasets. flowchart TD A["Research Goal: Determine ERP"] --> B{"Methodology & Inputs"}; B --> C["Data: Historical Market Returns<br>Risk-Free Rate<br>Implied ERP from Valuation"]; B --> D["Model: DCF & Risk Models"]; C --> E{"Computational Process"}; D --> E; E --> F["Estimate Base ERP<br>+ Adjust for Risk Factors"]; E --> G["Forward-Looking Analysis<br>vs. Historical Averages"]; F --> H["Key Outcomes"]; G --> H; H --> I["2015 ERP Estimate<br>5.5% - 6.5%"]; H --> J["Implications for:<br>Cost of Equity & Capital"];

Equity Risk Premiums (ERP): Determinants, Estimation, and Implications – The 2025 Edition ArXiv ID: ssrn-5168609 “View on arXiv” Authors: Unknown Abstract The equity risk premium is the price of risk in equity markets, and it is not only a key input in estimating costs of equity and capital in both corporate Keywords: equity risk premium, cost of equity, valuation, corporate finance, risk and return, Equities Complexity vs Empirical Score Math Complexity: 4.0/10 Empirical Rigor: 6.0/10 Quadrant: Street Traders Why: The paper focuses on practical estimation methods (historical, survey, implied) and uses empirical data from multiple markets, but relies on conceptual frameworks and regression analysis rather than advanced mathematical derivations. flowchart TD A["Research Goal: Determine 2025 Equity Risk Premium"] --> B["Methodology & Data Inputs"] B --> C["Computational Processes"] C --> D["Key Findings & Implications"] subgraph B ["Methodology & Data Inputs"] B1["Historical Market Returns"] B2["Inflation & Treasury Yields"] B3["Valuation Multiples<br>P/E, Dividend Yields"] end subgraph C ["Computational Processes"] C1["Historical Averages"] C2["Build-Up Models<br>ERP = RiskFree + Equity Risk Compensation"] C3["Inverse P/E Implied ERP"] end subgraph D ["Key Findings & Implications"] D1["Updated Cost of Equity<br>Estimates"] D2["Valuation Adjustments<br>for 2025"] D3["Strategic Asset Allocation<br>Guidance"] end

Systematic Comparable Company Analysis and Computation of Cost of Equity using Clustering ArXiv ID: 2405.12991 “View on arXiv” Authors: Unknown Abstract Computing cost of equity for private corporations and performing comparable company analysis (comps) for both public and private corporations is an integral but tedious and time-consuming task, with important applications spanning the finance world, from valuations to internal planning. Performing comps traditionally often times include high ambiguity and subjectivity, leading to unreliability and inconsistency. In this paper, I will present a systematic and faster approach to compute cost of equity for private corporations and perform comps for both public and private corporations using spectral and agglomerative clustering. This leads to a reduction in the time required to perform comps by orders of magnitude and entire process being more consistent and reliable. ...

Equity Risk Premiums (ERP): Determinants, Estimation, and Implications – The 2021 Edition ArXiv ID: ssrn-3825823 “View on arXiv” Authors: Unknown Abstract The equity risk premium is the price of risk in equity markets, and it is not just a key input in estimating costs of equity and capital in both corporate finan Keywords: equity risk premium, cost of equity, capital asset pricing model, valuation, risk pricing, Equities Complexity vs Empirical Score Math Complexity: 2.5/10 Empirical Rigor: 7.0/10 Quadrant: Street Traders Why: The paper uses foundational finance equations (CAPM, multi-factor models) with minimal advanced derivation, placing math complexity low. However, it heavily relies on historical data, surveys, and real-world market data (default spreads, option prices) to estimate and compare equity risk premiums, making it highly empirical and implementation-focused. flowchart TD A["Research Goal: Determine ERP<br>for Corporate Valuation"] --> B["Key Methodology: Historical Analysis"] B --> C["Data Inputs: Historical<br>Stock Returns vs<br>Risk-Free Rates"] C --> D["Computational Process:<br>Calculate Average Historical ERP<br>& Adjust for Market Conditions"] D --> E["Key Findings: ERP is unstable<br>Context-dependent; Required for<br>accurate Cost of Equity &<br>Valuation models"]

Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2018 Edition ArXiv ID: ssrn-3140837 “View on arXiv” Authors: Unknown Abstract The equity risk premium is the price of risk in equity markets and is a key input in estimating costs of equity and capital in both corporate finance and valuat Keywords: Equity Risk Premium (ERP), Cost of Equity, Capital Budgeting, Valuation Models, Equities Complexity vs Empirical Score Math Complexity: 3.0/10 Empirical Rigor: 4.0/10 Quadrant: Philosophers Why: The paper focuses on conceptual discussions and determinants of the equity risk premium with limited advanced mathematical derivations, and while it uses historical and implied data, it does not present a systematic backtesting framework with implementation details. flowchart TD A["Research Goal: Determine &<br>Estimate Equity Risk Premium"] --> B["Key Methodology<br>Historical & Fundamental Analysis"] B --> C["Data & Inputs<br>Dividend Yields, Earnings Growth<br>Bond Yields, Inflation"] C --> D["Computational Process<br>Build DCF Models &<br>Deconstruct ERP Components"] D --> E{"Key Findings & Outcomes"} E --> F["ERP is Dynamic<br>Highly Sensitive to<br>Macro Conditions"] E --> G["CRP: Consumer Risk<br>Premium is a Key<br>Determinant"] E --> H["Valuation Outcome<br>Cost of Equity Capital<br>Estimates for Investment"]

Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2017 Edition ArXiv ID: ssrn-2947861 “View on arXiv” Authors: Unknown Abstract The equity risk premium is the price of risk in equity markets and is a key input in estimating costs of equity and capital in both corporate finance and valuat Keywords: equity risk premium, cost of equity, risk and return models, capital asset pricing model, valuation, Equities Complexity vs Empirical Score Math Complexity: 4.0/10 Empirical Rigor: 5.0/10 Quadrant: Street Traders Why: The paper employs established financial mathematics (DCF, option pricing) but focuses on estimation methodologies and practical implications rather than novel derivations. It relies heavily on historical and implied market data, with extensive data appendices and real-world applications for valuation and corporate finance, making it implementation-heavy. flowchart TD A["Research Goal<br>Determine the Equity Risk Premium"] --> B["Methodology<br>Historical Implied & Survey Approaches"] B --> C["Data Inputs<br>Historical Market Returns, Bond Yields, Surveys"] C --> D["Computation<br>Estimate Expected Returns & Risk"] D --> E["Key Findings<br>ERP Varies by Market, Estimation Period, and Method; Critical for Cost of Equity & Valuation"]

Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2014 Edition ArXiv ID: ssrn-2409198 “View on arXiv” Authors: Unknown Abstract Equity risk premiums are a central component of every risk and return model in finance and are a key input in estimating costs of equity and capital in both cor Keywords: Equity Risk Premium, Cost of Equity, Risk and Return Models, Valuation, Capital Budgeting Complexity vs Empirical Score Math Complexity: 2.5/10 Empirical Rigor: 4.0/10 Quadrant: Philosophers Why: The paper focuses on conceptual discussion of risk premium determinants and methodological comparisons (historical, survey, implied) with minimal advanced mathematical derivation. While it discusses estimation approaches and financial implications, it does not present code, backtesting results, or detailed statistical implementations, placing it more in the conceptual/theoretical realm. flowchart TD A["Research Goal: Determinants, Estimation & Implications of ERP"] --> B["Key Data Inputs: Historical Returns, Macro-economic Variables, Survey Data"] B --> C["Methodology: Historical & Forward-Looking Estimation Models"] C --> D["Computational Process: Risk Premium Calculation & Adjustment"] D --> E{"Key Findings: ERP Sensitivity to Market Conditions & Valuation Impact"} E --> F["Implication: Cost of Equity & Capital Budgeting Decisions"]

Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2012 Edition ArXiv ID: ssrn-2027211 “View on arXiv” Authors: Unknown Abstract Equity risk premiums are a central component of every risk and return model in finance and are a key input into estimating costs of equity and capital in both c Keywords: Equity Risk Premium, Cost of Equity, Valuation, Risk Management, Asset Pricing Complexity vs Empirical Score Math Complexity: 3.5/10 Empirical Rigor: 4.0/10 Quadrant: Philosophers Why: The paper focuses on conceptual frameworks, economic determinants, and practical estimation methods (historical, survey, implied) rather than advanced mathematical derivations. It lacks code, backtests, or extensive statistical metrics, emphasizing theoretical discussion and comparison of approaches over empirical implementation. flowchart TD A["Research Goal:<br>Estimate & Analyze ERP for 2012"] --> B{"Methodology"} B --> C["Historical & Survey Data<br>Input: Historical Returns, Risk-free Rates"] B --> D["Computational Process<br>Input: Valuation Multiples & DCF Models"] C --> E["Analysis: Implied ERP<br>Output: Current Market ERP"] D --> E E --> F["Key Outcomes"] F --> G["ERP Sensitivity:<br>Risk aversion & Macro variables"] F --> H["Valuation Impact:<br>Cost of Equity adjustments"]

Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2011 Edition ArXiv ID: ssrn-1769064 “View on arXiv” Authors: Unknown Abstract Equity risk premiums are a central component of every risk and return model in finance and are a key input into estimating costs of equity and capital in both c Keywords: Equity Risk Premium, Cost of Equity, Risk and Return Models, Valuation, Capital Budgeting, Equity Complexity vs Empirical Score Math Complexity: 3.5/10 Empirical Rigor: 4.0/10 Quadrant: Philosophers Why: The paper focuses on conceptual frameworks, determinants, and comparative estimation approaches (historical, survey, implied) for the equity risk premium, using established financial formulas like the CAPM rather than advanced derivations. While it discusses data and practical implications, it is primarily a review and synthesis of existing methodologies without presenting new backtests, complex statistical models, or implementation-heavy empirical studies. flowchart TD Start(["Research Goal:<br>Estimate ERP for 2011"]) --> Inputs subgraph Inputs ["Data/Inputs"] I1["Historical Market Returns"] I2["Risk-Free Rates"] I3["Inflation Rates"] end Inputs --> Method subgraph Method ["Key Methodology Steps"] M1["Historical ERP Calculation"] M2["Implied ERP Modeling"] M3["Forward-Looking Adjustments"] end Method --> Comp subgraph Comp ["Computational Processes"] C1["Statistical Aggregation"] C2["Regression Analysis"] C3["Risk Factor Decomposition"] end Comp --> Outcomes subgraph Outcomes ["Key Findings"] O1["Implied ERP: ~5-6%"] O2["Country Risk Premiums"] O3["Valuation Adjustments"] end