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The Price of Risk: With Equity Risk Premiums, Caveat Emptor!
Published 3 weeks, 3 days ago
Description
The equity risk premium (ERP) is the price of risk in the equity market, set by demand and supply, but determined by economic and market fundamentals. In this session, I look at why the ERP is embedded in almost every investment decision, as an input, and why its level should matter to investors. I look at different approaches to estimating it, from looking at the past (historical returns) to using shortcuts (the earnings yield) to backing out the premium for stock pricing, and why they yield divergent estimates for the ERP, and how to reconcile them.
Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/PriceofRisk2023.pdf
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