Ongoing research analyzes the history of the equity risk premium from surveys of U.S. chief financial officers conducted every quarter from June 2000 to June 2016. The latest information is contained in a paper “The Equity Risk Premium in 2016,” by John R. Graham and Campbell R. Harvey (Duke University and Duke University-Fuqua School of Business).
Up a little: They find that the average risk premium in 2016, 4.02%, is slightly higher than the average observed over the past 16 years. “We also provide results on the risk premium disagreement among respondents as well as asymmetry or skewness of risk premium estimates,” say the authors. “We also link our risk premium results to survey-based measures of the weighted average cost of capital and investment hurdle rates. The hurdle rates are significantly higher than the cost of capital implied by the market risk premium estimates.”
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