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

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  • Fernandez, Pablo

    ()
    (IESE Business School)

Abstract

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.

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Bibliographic Info

Paper provided by IESE Business School in its series IESE Research Papers with number D/784.

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Length: 22 pages
Date of creation: 03 Mar 2009
Date of revision:
Handle: RePEc:ebg:iesewp:d-0784

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Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/
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Related research

Keywords: equity premium puzzle; required equity premium; expected equity premium; historical equity premium;

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  1. Ivo Welch, 2000. "Views of Financial Economists on the Equity Premium and on Professional Controversies," Yale School of Management Working Papers ysm122, Yale School of Management.
  2. Ivo Welch, 2001. "The Equity Premium Consensus Forecast Revisited," Cowles Foundation Discussion Papers 1325, Cowles Foundation for Research in Economics, Yale University.
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