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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26918
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| Title: | Estimating Equity Risk Premiums |
| Authors: | Damodaran, Aswath |
| Issue Date: | 1999 |
| Series/Report no.: | FIN-99-021 |
| Abstract: | Equity risk premiums are a central component of every risk and return
model in finance. Given their importance, it is surprising how haphazard
the estimation of equity risk premiums remains in practice. The standard
approach to estimating equity risk premiums remains the use of
historical returns, with the difference in annual returns on stocks and
bonds over a long time period comprising the expected risk premium,
looking forward. We note the limitations of this approach, even in
markets like the United States, which have long periods of historical
data available, and its complete failure in emerging markets, where the
historical data tends to limited and noisy. We suggest ways in which
equity risk premiums can be estimated for these markets, using a base
equity premium and a country risk premium. Finally, we suggest an
alternative approach to estimating equity risk premiums that requires no
historical data and provides updated estimates for most markets. |
| URI: | http://hdl.handle.net/2451/26918 |
| Appears in Collections: | Finance Working Papers
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