We present new evidence on the distribution of the ex ante risk premium based on a multi-year survey of Chief Financial Officers (CFOs) of U.S. corporations. Currently, we have responses from surveys conducted from the second quarter of 2000 through the third quarter of 2001. The results in this paper will be augmented as future surveys become available. We find direct evidence that the one-year risk premium is highly variable through time and 10-year expected risk premium is stable. In particular, after periods of negative returns, CFOs significantly reduce their one-year market forecasts, disagreement (volatility) increases and returns distributions are more skewed to the left. We also examine the relation between ex ante returns and ex ante volatility. The relation between the one-year expected risk premium and expected risk is negative. However, our research points to the importance of horizon. We find a significantly positive relation between expected return and expected risk at the 10-year horizon.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
8678.
Length: Date of creation: Dec 2001 Date of revision: Handle: RePEc:nbr:nberwo:8678
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Find related papers by JEL classification: G1 - Financial Economics - - General Financial Markets G3 - Financial Economics - - Corporate Finance and Governance
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Ravi Jagannathan & Ellen R. McGrattan & Anna Scherbina., 2000.
"The declining U.S. equity premium,"
Quarterly Review,
Federal Reserve Bank of Minneapolis, issue Fall, pages 3-19.
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