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The equity risk premium: a review of models

Author

Listed:
  • Duarte, Fernando M.

    (Federal Reserve Bank of New York)

  • Rosa, Carlo

    (Federal Reserve Bank of New York)

Abstract

We estimate the equity risk premium (ERP) by combining information from twenty models. The ERP in 2012 and 2013 reached heightened levels—of around 12 percent—not seen since the 1970s. We conclude that the high ERP was caused by unusually low Treasury yields.

Suggested Citation

  • Duarte, Fernando M. & Rosa, Carlo, 2015. "The equity risk premium: a review of models," Staff Reports 714, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:714
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    References listed on IDEAS

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    Blog mentions

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    1. China's stock market boom and bust
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2015-07-06 16:23:21

    Citations

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    Cited by:

    1. Paweł Sakowski & Robert Ślepaczuk & Mateusz Wywiał, 2016. "Applying exogenous variables and regime switching to multi-factor models on equity indices," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 47.
    2. German Gutierrez, 2018. "Investigating Global Labor and Pro t Shares," 2018 Meeting Papers 165, Society for Economic Dynamics.
    3. Keshav Dogra & Sushant Acharya, 2017. "The Side Effects of Safe Asset Creation," 2017 Meeting Papers 1453, Society for Economic Dynamics.
    4. Leiss, Matthias & Nax, Heinrich H. & Sornette, Didier, 2015. "Super-exponential growth expectations and the global financial crisis," LSE Research Online Documents on Economics 65434, London School of Economics and Political Science, LSE Library.
    5. repec:nbr:nberch:14088 is not listed on IDEAS
    6. Williams, John C., 2017. "Three Questions on R-star," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    7. Caballero, Ricardo & Farhi, Emmanuel & Gourinchas, Pierre-Olivier, 2017. "Rents, Technical Change, and Risk Premia: Accounting for Secular Trends in Interest Rates, Returns to Capital, Earnings Yields, and Factor Shares," CEPR Discussion Papers 11833, C.E.P.R. Discussion Papers.
    8. Loukas Karabarbounis & Brent Neiman, 2018. "Accounting for Factorless Income," NBER Chapters,in: NBER Macroeconomics Annual 2018, volume 33 National Bureau of Economic Research, Inc.
    9. Paweł Sakowski & Robert Ślepaczuk & Mateusz Wywiał, 2015. "Cross-Sectional Returns With Volatility Regimes From Diverse Portfolio of Emerging and Developed Equity Indices," Working Papers 2015-39, Faculty of Economic Sciences, University of Warsaw.
    10. repec:aea:jecper:v:31:y:2017:i:3:p:29-46 is not listed on IDEAS
    11. Gonçalo Faria & Fabio Verona, 2016. "Forecasting the equity risk premium with frequency-decomposed predictors," Working Papers de Economia (Economics Working Papers) 06, Católica Porto Business School, Universidade Católica Portuguesa.
    12. Pawe³ Sakowski & Robert Œlepaczuk & Mateusz Wywia³, 2016. "Cross-Sectional Returns With Volatility Regimes From A Diverse Portfolio Of Emerging And Developed Equity Indices," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 12(2), pages 23-35, October.
    13. Grout, Paul A. & Zalewska, Anna, 2016. "Stock market risk in the financial crisis," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 326-345.
    14. Paweł Sakowski & Robert Ślepaczuk & Mateusz Wywiał, 2016. "Applying Exogenous Variables and Regime Switching To Multifactor Models on Equity Indices," Working Papers 2016-10, Faculty of Economic Sciences, University of Warsaw.
    15. Andrea Pescatori & Jarkko Turunen, 2015. "Lower for Longer; Neutral Rates in the United States," IMF Working Papers 15/135, International Monetary Fund.
    16. Kovner, Anna & Van Tassel, Peter, 2018. "Regulatory changes and the cost of capital for banks," Staff Reports 854, Federal Reserve Bank of New York, revised 01 Oct 2018.
    17. repec:aea:aecrev:v:107:y:2017:i:5:p:614-20 is not listed on IDEAS
    18. repec:eee:ecmode:v:66:y:2017:i:c:p:244-257 is not listed on IDEAS
    19. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2017. "Rents, Technical Change, and Risk Premia Accounting for Secular Trends in Interest Rates, Returns on Capital, Earning Yields, and Factor Shares," American Economic Review, American Economic Association, vol. 107(5), pages 614-620, May.
    20. Andrea Pescatori & Jarkko Turunen, 2016. "Lower for Longer: Neutral Rate in the U.S," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(4), pages 708-731, November.

    More about this item

    Keywords

    equity premium; stock returns;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G00 - Financial Economics - - General - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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