What’s your 2023 market risk premium?

BVWire–UKIssue #50-1
May 9, 2023

Aswath Damodaran (New York University Stern School of Business) has posted his annual “Equity Risk Premiums (ERP): Determinants, Estimation and Implications—The 2023 Edition.” This is Aswath’s 14th update of this work, and, as usual, it provides a detailed picture of ERPs. Damodaran reviews two approaches to estimating ERP: the ex post approach (using historical information) and the ex ante approach, which is forward-looking—though he has always been a strong proponent of the use of the ex ante approach, or “implied” ERPs. Implied ERPs are extracted by examining stock prices today and expected cash flows in the future. Damodaran’s implied ERPs are one of the options available in BVR’s Cost of Capital Professional when estimating the cost of equity.

Pablo Fernandez and co-authors Diego García and Javier F. Acin (all with the IESE Business School in Spain) have also recently updated their survey results for the Market Risk Premium (MRP) and Risk-Free Rate (RF) used in 80 countries. As usual, their update also provides links to previous years surveys, from 2008 to 2022.

Based on U.S.-only responses, Fernandez found an average market risk premium of 5.7% and a median of 5.5%. Not surprisingly, countries such as Ukraine, Argentina, and Venezuela lead all nations, with rates between 23% and 30%. 

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