Risk and Return models for Equity Markets and Implied Equity Risk Premium
Equity risk premium is a central component of every risk and return model in finance and a key input to estimate costs of equity and capital in both corporate finance and valuation. An article by Damodaran examines three broad approaches for estimating the equity risk premium. The first is survey based, it consists in asking common investors or big players like pension fund managers what they require as a premium to invest in equity. The second is to look at the premia earned historically by investing in stocks, as opposed to risk-free investments. The third method tries to extrapolate a market-consensus on equity risk premium (Implied Equity Risk Premium) by analysing equity prices on the market today. After having introduced some basic concepts and models, I'll briefly explain the pluses and minuses of the first two methods, and analyse more deeply the third. In the end I'll show the results of my estimation of ERP on real data, using variants of the Implied ERP (third) method.
Code (0)
등록된 구현이 없습니다.
Tasks
ERPSimilar Papers 제목 키워드 기반
Equity Tail Risk in the Treasury Bond Market
This paper quantifies the effects of equity tail risk on the US government bond market. We estimate equity tail risk with option-implied stock market volatility that stems from large negative price jumps, and we assess i…
On short-time behavior of implied volatility in a market model with indexes
This paper investigates short-term behaviors of implied volatility of derivatives written on indexes in equity markets when the index processes are constructed by using a ranking procedure. Even in simple market settings…
Equity Premium in Efficient Markets
Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that…
150 Years of Return Predictability Around the World: A Holistic View
Using new annual data of 16 developed countries across bond, equity, and housing markets, I study the return predictability using the payout-price ratios, i.e., coupon price, dividend price, and rent price. None of the 4…
Endogenous Representation of Asset Returns
Factor modeling of asset returns has been a dominant practice in investment science since the introduction of the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). The factors, which account for …