Damodaran posts his data update for 2022

BVWireIssue #232-2
January 19, 2022

cost of capital
cost of capital, discount rate, equity risk premium, private company valuation, risk analysis, cost of equity

Each year, Professor Aswath Damodaran (New York University Stern School of Business) generously posts a great amount of data on his website that include risk-free rates, equity risk premiums (ERPs), corporate default spreads, corporate tax rates, country risk premiums, and other data—all of which are free. He does a series of posts on his blog based on these new data, and the first post explains some of these data and gives the background of his annual analysis.

Implied ERP at 4.9%: A favorite topic of Damodaran is the ERP, and he uses a forward-looking method he calls the “implied” ERP as opposed to the “historical” ERP. He backs this number out from the current market prices and expected future cash flows, which gives an internal rate of return for equities that is analogous to the yield to maturity on a bond. He estimates the implied ERP to be 4.9% as of Jan. 1, 2022, and he reports the year-end estimates going back to 1960.

Damodaran does not update the data during the year, so his next update will be at the beginning of 2023. Therefore, you need to be careful about using the data later in the year, particularly if there is a major shift or disruption in the market or the industry of your subject company.

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