Revisiting the Market Risk Premium
Author | : James M. Sfiridis |
Publisher | : |
Total Pages | : 28 |
Release | : 2011 |
ISBN-10 | : OCLC:1290242459 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Revisiting the Market Risk Premium written by James M. Sfiridis and published by . This book was released on 2011 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Though the profound importance of the market risk premium to finance is unquestioned, its actual measurement has been problematic for both academics and analysts alike. What exactly is the magnitude of the ex post market risk premium? What is its relationship with the expected or ex ante premium? Though finance theory estimates an historical equity premium of 1-2%, simple arithmetic averaging of historical data gives a greater mean of 5-6%, an anomaly known as the equity premium puzzle. More recent findings provide a still greater equity premium point estimate. This paper explores the hypothesis that statistical misspecification of historical equity premium data may be an important contributing factor for such contradictions.