Unconstrained estimates of the equity risk premium

Unconstrained estimates of the equity risk premium Estimates of the equity risk premium implied by analyst forecasts—generally 2–4 %—are often significantly below realized equity returns of 6 %. Measurement error could result from conservative assumptions, reliance upon consensus rather than detailed forecasts, the use of market rather than target prices, and regression analysis, which can be influenced by a small number of observations. We address these potential sources of measurement error. Our estimates are consistent with subsequently realized returns and capture systematic risk exposure. Alternative techniques could capture another form of priced risk or identify firm characteristics associated with systematic mispricing. From 1999 to 2008, we estimate an average equity risk premium in the United States of 5.3 %. The estimate increases from 3.1 % for 1999–2000 to 5.9 % from 2001 to 2008, comparable to the historical average of realized equity returns. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Unconstrained estimates of the equity risk premium

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Publisher
Springer US
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-013-9225-z
Publisher site
See Article on Publisher Site

References

  • Information content of equity analyst reports
    Asquith, P; Mikhail, M; Au, A
  • Equity valuation employing the ideal versus ad hoc terminal value expressions
    Courteau, L; Kao, JL; Richardson, G
  • Which types of analyst firms are more optimistic?
    Cowen, A; Groysberg, B; Healy, P
  • Global evidence on the equity risk premium
    Dimson, E; Marsh, P; Staunton, M

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