Kroll increases market risk premium recommendation

BVWire–UKIssue #45-1
December 6, 2022

Kroll has increased its recommended U.S. equity risk premium (ERP) from 5.5% to 6.0% when developing USD-denominated discount rates as of Oct. 18, 2022. This is matched with the higher of a normalised risk-free rate of 3.5% or the spot 20-year U.S. Treasury yield as of the valuation date if it is higher than 3.5%, Kroll says.

Big picture: “Starting in mid-January, as inflation continued to surprise with increasingly higher-than-expected readings reaching levels not seen in 30 to 40 years in some countries, global equity markets became more volatile,” says the firm in a recent update. “Investors have tried to ascertain the magnitude and speed at which central banks will raise interest rates, leading to a potential decrease in the value of companies in various industries due to an increase in discount rates.”

In the same update, Kroll issued its recommendations for Canada, the eurozone (from a German investor perspective), and the United Kingdom.

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