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Market risk premium used in 2008: A survey of more than a 1,000 professors

The average Market Risk Premium (MRP) used in 2008 by professors in the United States (6.5%) was higher than the one used by their colleagues in Europe (5.3%), Canada (5.4%), the United Kingdom (5.6%) and Australia (5.9%). The dispersion of the MRP was high. 15% ofthe professors decreased their MRP in 2008 (1.5% on average) and 24% increased it (2% on average). 66% of the professors used a lower MRP in 2007 than in 2000 (22% used a higher one). The average MRP used in 2007 was 1.5% lower than the one used in 2000. Most previous surveys were interested in the Expected MRP, but this survey asks about the Required MRP. The paper also contains the references that professors use to justify their MRP and comments from 180 professors that illustrate the variety of interpretations of what the required MRP is and explain the confusion of students and practitioners about its concept and magnitude.
Year of publication:
2009-03-03
Authors: Fernandez, Pablo
Institutions: IESE Business School, Universidad de Navarra
Subject: equity premium puzzle | required equity premium | expected equity premium | historical equity premium
Full text |
Extent:
application/pdf
Series:
Type of publication: Book / Working Paper
Language: English
Notes:
The text is part of a series IESE Research Papers Number D/784 22 pages
Classification: G12 - Asset Pricing ; G31 - Capital Budgeting; Investment Policy ; M21 - Business Economics
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