Cost of Equity

Equity Risk Premiums (ERP): Determinants, Estimation and Implications - The 2010 Edition ArXiv ID: ssrn-1556382 “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, risk and return models, cost of equity, capital budgeting, valuation, Equities Complexity vs Empirical Score Math Complexity: 3.5/10 Empirical Rigor: 4.0/10 Quadrant: Philosophers Why: The paper uses standard financial mathematics like beta in the CAPM but avoids heavy derivations, focusing more on conceptual discussion and comparative analysis of estimation approaches. It discusses historical, survey, and implied methods for determining the equity risk premium, but the excerpt lacks concrete backtesting results, specific datasets, or detailed implementation protocols. flowchart TD A["Research Goal: Estimate & Analyze ERP for Valuation & Cost of Equity"] B["Methodology: Historical & Implied ERP Analysis"] C["Data Inputs: Equity Returns, Bond Yields, Inflation, Credit Spreads"] D["Computation: Build-up & Regression Models Forward-Looking Adjustments"] E["Key Findings: ERP > Historical Gov Bond Yields ERP decreases as P/E increases Higher ERP for Emerging Markets"] A --> B --> C --> D --> E

Equity Risk Premiums (ERP): Determinants, Estimation and Implications - A Post-Crisis Update ArXiv ID: ssrn-1492717 “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, capital asset pricing model, valuation, risk modeling, Equities Complexity vs Empirical Score Math Complexity: 4.0/10 Empirical Rigor: 3.0/10 Quadrant: Philosophers Why: The paper is conceptually oriented, discussing determinants and estimation methods for equity risk premiums without presenting advanced mathematical derivations or rigorous empirical backtesting with specific datasets and performance metrics. flowchart TD A["Research Goal Determine Post-Crisis ERP"] --> B["Methodology Historical & Cross-Sectional Analysis"] B --> C{"Key Inputs Data Sources"} C --> C1["US Equity Returns"] C --> C2["Risk-Free Rates T-Bills/Bonds"] C --> C3["Inflation & Macro Indicators"] C --> D["Computational Processes"] D --> D1["Implied ERP Calculation"] D --> D2["Historical ERP Estimation"] D --> D3["Risk Model Integration CAPE/Dividend Models"] D1 & D2 & D3 --> E["Key Findings Outcomes"] E --> E1["ERP ≈ 4.5-5.5% Post-Crisis Estimate"] E --> E2["ERP is Non-Constant Varies with Market Conditions"] E --> E3["Cost of Equity ERP + Risk-Free Rate"] E --> E4["Valuation Implications Lower Discount Rates"]