Equity Risk Premium

Equity Risk Premiums (ERP): Determinants, Estimation, and Implications – The 2024 Edition ArXiv ID: ssrn-4751941 “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, Asset Pricing, Cost of Capital, Valuation Complexity vs Empirical Score Math Complexity: 5.0/10 Empirical Rigor: 7.0/10 Quadrant: Holy Grail Why: The paper introduces advanced financial theory and a wide array of estimation methodologies (implied premiums, surveys) but is grounded in extensive real-world data analysis, including country-specific risk premiums and market volatility metrics. flowchart TD A["Research Goal: ERP Determinants & Estimation"] --> B["Data Inputs"] B --> C{"Methodology: Historical vs. Forward<br>Integration of Macroeconomic Variables"} C --> D["Computational Processes<br>Model Estimation & Valuation Metrics"] D --> E["Key Findings: ERP Trends & Implications<br>Cost of Capital Updates"]

Equity Premium Prediction: Taking into Account the Role of Long, even Asymmetric, Swings in Stock Market Behavior ArXiv ID: 2509.10483 “View on arXiv” Authors: Kuok Sin Un, Marcel Ausloos Abstract Through a novel approach, this paper shows that substantial change in stock market behavior has a statistically and economically significant impact on equity risk premium predictability both on in-sample and out-of-sample cases. In line with Auer’s ‘‘Bullish ratio’’, a ‘‘Bullish index’’ is introduced to measure the changes in stock market behavior, which we describe through a ‘‘fluctuation detrending moving average analysis’’ (FDMAA) for returns. We consider 28 indicators. We find that a ‘‘positive shock’’ of the Bullish Index is closely related to strong equity risk premium predictability for forecasts based on macroeconomic variables for up to six months. In contrast, a ‘’negative shock’’ is associated with strong equity risk premium predictability with adequate forecasts for up to nine months when based on technical indicators. ...

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

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 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

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:<br>Estimate & Analyze ERP for Valuation & Cost of Equity"] B["Methodology:<br>Historical & Implied ERP Analysis"] C["Data Inputs:<br>Equity Returns, Bond Yields, Inflation, Credit Spreads"] D["Computation:<br>Build-up & Regression Models<br>Forward-Looking Adjustments"] E["Key Findings:<br>ERP > Historical Gov Bond Yields<br>ERP decreases as P/E increases<br>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<br>Determine Post-Crisis ERP"] --> B["Methodology<br>Historical & Cross-Sectional Analysis"] B --> C{"Key Inputs<br>Data Sources"} C --> C1["US Equity Returns"] C --> C2["Risk-Free Rates<br>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<br>CAPE/Dividend Models"] D1 & D2 & D3 --> E["Key Findings<br>Outcomes"] E --> E1["ERP ≈ 4.5-5.5%<br>Post-Crisis Estimate"] E --> E2["ERP is Non-Constant<br>Varies with Market Conditions"] E --> E3["Cost of Equity<br>ERP + Risk-Free Rate"] E --> E4["Valuation Implications<br>Lower Discount Rates"]