Download or read book The Relationship between the Equity Risk Premium Duration and Dividend Yield written by Ruben Cohen and published by . This book was released on 2016 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on the fundamental equations of equity valuation, we derive here the relationship between the equity risk premium, duration and dividend yield. Aside from providing a logical foundation for the difference between the ex-ante and ex-post measures of the risk premium, the work leads to other outcomes, namely, but not specifically, (1) that the current, effective dividend policy is a signalling process, conveying information on expected profits, (2) an alternative valuation relation, stemming from the above-mentioned dividend policy, (3) another proof to the notion that the forwardlooking equity risk premium is the expected dividend yield and, finally, (4) a straightforward, analytical explanation for the dividend puzzle, as well as for the observed decline in both, the dividend yield and the forward-looking equity risk premium.

Download or read book The Equity Risk Premium written by Bradford Cornell and published by John Wiley & Sons. This book was released on 1999-05-26 with total page 248 pages. Available in PDF, EPUB and Kindle. Book excerpt: Das Thema Risikoprämie für Aktien (Equity Risk Premium) wird hier zum ersten Mal verständlich erklärt. Die Risikoprämie für Aktien stellt einen Renditeausgleich dar für das erhöhte Risiko, das ein Anleger bei der Investition in Aktien eingeht, im Vergleich zu einer Investition in risikofreie Staatsanleihen. Die Risikoprämie ist zwar von der Theorie her einfach, jedoch in der Praxis ein sehr komplexes Phänomen. Für Finanzentscheidungen ist es von größter Bedeutung, daß man das Prinzip der Risikoprämie versteht und es anwenden kann. Cornell erläutert das Thema Schritt für Schritt sehr anschaulich und ohne terminologischen Ballast. Zunächst wird die Risikoprämie im Zusammenhang mit der Geschichte des Aktienmarktes betrachtet. Der Haussemarkt der 90er dient dabei als Fallstudie. Cornell zeigt, welche Rückschlüsse man durch die Analyse der Risikoprämie im historischen Verlauf für den Aktienmarkt ziehen kann, z.B. ob Aktienkurse steigen oder fallen oder ob sich der Aktienmarkt verändert. Vorausschauende Schätzungen der Risikoprämie werden anhand verschiedener konkurrierender Modelle analysiert, wobei die Vorzüge der jeweiligen Methode mitbewertet werden. 'Equity Risk Premium' ist das erste Buch, das dieses wichtige Prinzip der Risiko-Nutzen-Analyse erschöpfend behandelt. Es vermittelt einen tiefen Einblick und deckt alle Grundlagen ab, damit Investoren fundierte Finanzentscheidungen treffen können. Ein absolutes Muß für institutionelle Anleger, Geldmanager und Finanzvorstände, die auf eine fundierte Marktanalyse zurückgreifen müssen. (06/99)

Download or read book The Equity Risk Premium written by William N. Goetzmann and published by Oxford University Press. This book was released on 2006-11-16 with total page 568 pages. Available in PDF, EPUB and Kindle. Book excerpt: What is the return to investing in the stock market? Can we predict future stock market returns? How have equities performed over the last two centuries? The authors in this volume are among the leading researchers in the study of these questions. This book draws upon their research on the stock market over the past two dozen years. It contains their major research articles on the equity risk premium and new contributions on measuring, forecasting, and timing stock market returns, together with new interpretive essays that explore critical issues and new research on the topic of stock market investing. This book is aimed at all readers interested in understanding the empirical basis for the equity risk premium. Through the analysis and interpretation of two scholars whose research contributions have been key factors in the modern debate over stock market perfomance, this volume engages the reader in many of the key issues of importance to investors. How large is the premium? Is history a reliable guide to predict future equity returns? Does the equity and cash flows of the market? Are global equity markets different from those in the United States? Do emerging markets offer higher or lower equity risk premia? The authors use the historical performance of the world's stock markets to address these issues.

Download or read book The Equity Risk Premium A Contextual Literature Review written by Laurence B. Siegel and published by CFA Institute Research Foundation. This book was released on 2017-12-08 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: Research into the equity risk premium, often considered the most important number in finance, falls into three broad groupings. First, researchers have measured the margin by which equity total returns have exceeded fixed-income or cash returns over long historical periods and have projected this measure of the equity risk premium into the future. Second, the dividend discount model—or a variant of it, such as an earnings discount model—is used to estimate the future return on an equity index, and the fixed-income or cash yield is then subtracted to arrive at an equity risk premium expectation or forecast. Third, academics have used macroeconomic techniques to estimate what premium investors might rationally require for taking the risk of equities. Current thinking emphasizes the second, or dividend discount, approach and projects an equity risk premium centered on 3½% to 4%.

Download or read book Dividend Yields are Equity Risk Premiums written by Michael S. Rozeff and published by . This book was released on 2005 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article presents evidence that dividend yields are directly related to and predict future stock returns: The higher the yield, the higher the stock return. The paper uses the constant dividend growth model and the subsidiary Golden Rule of Accumulation view that real long-term growth equals the real rate of interest in order to show that the dividend yield is directly related to the risk premium. A predictive test shows that dividend yields provide superior predictions of equity risk premiums in terms of lower bias, lower mean square error and lower mean absolute error as compared with the method of using historical realized returns.

Download or read book Handbook of the Equity Risk Premium written by Rajnish Mehra and published by Elsevier. This book was released on 2011-08-11 with total page 635 pages. Available in PDF, EPUB and Kindle. Book excerpt: Edited by Rajnish Mehra, this volume focuses on the equity risk premium puzzle, a term coined by Mehra and Prescott in 1985 which encompasses a number of empirical regularities in the prices of capital assets that are at odds with the predictions of standard economic theory.

Download or read book Rethinking the Equity Risk Premium written by P. Brett Hammond and published by . This book was released on 2016 with total page 164 pages. Available in PDF, EPUB and Kindle. Book excerpt: In 2001, a small group of academics and practitioners met to discuss the equity risk premium (ERP). Ten years later, in 2011, a similar discussion took place, with participants writing up their thoughts for this volume. The result is a rich set of papers that practitioners may find useful in developing their own approach to the subject.

Download or read book Revisiting the Equity Risk Premium written by Laurence B. Siegel and published by CFA Institute Research Foundation. This book was released on 2023-06-06 with total page 270 pages. Available in PDF, EPUB and Kindle. Book excerpt: In 2001, Martin Leibowitz organized an Equity Risk Premium (ERP) Forum for CFA Institute, in which the participants discussed issues related to the ERP and made estimates for the future. This forum was repeated by Leibowitz, Brett Hammond, and Laurence Siegel in 2011, setting a precedent for a decennial forum. Siegel organized and moderated the discussion in 2021, and the proceedings from that event make up the current book. The participants in 2021 were (in alphabetical order) Robert Arnott, Clifford Asness, Mary Ida Compton, Elroy Dimson, William Goetzmann, Roger Ibbotson, Antti Ilmanen, Martin Leibowitz, Rajnish Mehra, Thomas Philips, and Jeremy Siegel. Each participant made a presentation, which was then discussed by the whole group. Finally, a roundtable discussion involving all of the participants was moderated by Laurence Siegel. Ibbotson and Dimson discussed historical returns in different countries. Ibbotson focused on the United States, while Dimson took a global industrial-country view. The history goes back almost a century (Ibbotson) or more than a century (Dimson), providing a look at how returns have evolved over a wide variety of conditions. Ibbotson also presented his method for making probabilistic forecasts of returns. Dimson, who is British, showed that “American exceptionalism” is one way to understand the results. Asness looked at the effectiveness of Robert Shiller’s CAPE (cyclically adjusted price-earnings ratio) valuation measure for forecasting. Valuations rose over the period he studied, and a lively discussion was had about why this may have occurred. Arnott focused on the growth rate of dividends, which has been very slow in per-share terms, and argued (with much debate from the other participants) that buybacks are only a partial substitute for dividends. Leibowitz, also looking at valuation as the lodestone of return forecasts, set forth a “growth adjustment” that brought his forecast in line with those made by others. Compton, a consultant to pension plans, discussed the challenges of communicating lower expected returns to clients. She also emphasized that expected returns “don’t always come true,” they’re just someone’s best forecast. Ilmanen broke up the expected return into its component parts: dividends, real growth, inflation, and so forth. Doing this, he said, allows one to debate the estimates for each part and ascertain how accurate each of the estimates is. Philips started by presenting a method for forecasting bond returns. He then turned to equities, for which he compared forecasts with subsequent realizations using a variety of forecast methods. Mehra discussed a number of issues related to the existence of premiums (equity risk, value, small cap, and so forth) and concluded that, although some of these are unstable, the ERP is highly stable. Jeremy Siegel advocated a “back to basics” approach using dividend and earnings yields, dividend and earnings growth rates, payout ratios, and price-to-earnings ratios. He emphasized that earnings can be calculated in a number of different way, and said that accounting practices have become more conservative over the years. Goetzmann concluded the session by reporting that one company, a water mill in France, had almost 600 years of historical return data and that an asset pricing model could be tested using those data. According to this model, the stock price is the present value of expected future dividends and is supported by the evidence. In sum, because of high valuations and low interest rates, the participants expect lower total returns in the future than in the past. A forward-looking ERP of 4% to 5% was the consensus of the group.

Download or read book The Conditional Relationship between the Equity Risk Premium and the Dividend Price Ratio written by Eric Engstrom and published by . This book was released on 2003 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dividend price ratio is among the most commonly proposed instruments for forecasting equity returns. Despite an ongoing debate struggling to establish the efficacy of regressions using the dividend price ratio to measure the conditional equity premium, such affine functions are now pervasive in literatures that use the conditional equity premium as an input. In this paper, I point out that economic models of risk speak directly to the properties of predictability regression statistics.Specifically, I demonstrate that in reasonable theoretical settings, predictability regressions may be badly misspecified. In particular, they may have low power to identify the conditional and nonlinear form of predictability suggested by structural treatments of risk. Additionally, simple predictive regressions produce estimates of the conditional risk premium which may be very different from the true values. Moreover,accommodating the implied instability in the relationship between the dividend price ratio and the equity risk premium can substantially improve out of sample forecasting power.

Download or read book Risk and Return for Regulated Industries written by Bente Villadsen and published by Academic Press. This book was released on 2017-04-27 with total page 362 pages. Available in PDF, EPUB and Kindle. Book excerpt: Risk and Return for Regulated Industries provides a much-needed, comprehensive review of how cost of capital risk arises and can be measured, how the special risks regulated industries face affect fair return, and the challenges that regulated industries are likely to face in the future. Rather than following the trend of broad industry introductions or textbook style reviews of utility finance, it covers the topics of most interest to regulators, regulated companies, regulatory lawyers, and rate-of-return analysts in all countries. Accordingly, the book also includes case studies about various countries and discussions of the lessons international regulatory procedures can offer. Presents a unified treatment of the regulatory principles and practices used to assess the required return on capital Addresses current practices before exploring the ways methods play out in practice, including irregularities, shortcomings, and concerns for the future Focuses on developed economies instead of providing a comprehensive global reviews Foreword by Stewart C. Myers

Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.

Download or read book The equity risk premium and stock market performance written by Robert D. Arnott and published by . This book was released on 1987 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book An Examination of Variation in the Equity Market Risk Premium written by David Bellamy and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper focuses on the time changing nature of the Australian equity market risk premium. The literature identifies a set of explanatory variables including yield curve slope, interest rate level, dividend yield and two measures of return volatility which may explain how the risk premium in equity market returns changes over time. A GARCH-M model using daily Australian is used in statistical tests. Volatility variables exhibit some explanatory power over the equity premium though this appears isolated to the post-crash period. The remaining explanatory variables provide little significant explanatory power. The model of time changing variance includes a GARCH process and an exogenous variable, implied volatility, which are statistically significant and of the expected sign. This is consistent with the possibility that these two sources of volatility predictions are useful in explaining changes in the variance of the equity risk premium.

Download or read book Option Implied Dividends and the Market Risk Premium written by Hamish Malloch and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a new method for computing a lower bound to the expected future dividend component of the market risk premium from observed option prices. We find that our estimate of future dividend yields has similar characteristics to future realized dividend yields, exhibits significant volatility, is a strong predictor of the realized dividend yield and constitutes at least 27% of the total market risk premium in the US.

Download or read book Dividend Risk and the Cross Section of Equity Risk Premia written by Antonio Picca and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I study a novel data set of short-term dividend futures contracts for individual stocks. I combine this data with dividend forecasts from equity research analysts to construct a model-free measure of short-term equity risk premia. I provide the first description of the cross-section of risk premia on short-maturity dividend claims. My data on risk premia for cash flows at a specific horizon (one to two years) provide a more tractable setting for understanding the differences in asset pricing across firms compared to standard equity returns, which mixes risk premia for cash flows at infinitely many maturities. The first empirical fact that emerges is a strong positive association between dividend risk and risk premia for short maturity claims. This contrasts with well-known "low risk" anomalies for standard equity. Specifically, I find that firms with high dividend volatility have (i) higher risk premia, (ii) a strongly pro-cyclical slope in their term structure of risk premia, and (iii) an inverse risk-return relation in realized stock returns. Lastly, I develop an asset-pricing model with heterogeneity in dividend volatility and time-varying market price of risk that explains my empirical results.

Download or read book Financial Stability Monitoring written by Tobias Adrian and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a recently released New York Fed staff report, we present a forward-looking monitoring program to identify and track time-varying sources of systemic risk.

Download or read book Equity Risk Premium and Volatility written by Yonggan Zhao and published by . This book was released on 2009 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the relation between stock market returns and volatility using a bivariate factor model governing the evolution of a volatility indicator and the market price of risk. The model-implied volatility measured by the conditional standard deviation of equity returns is compared with the predictable volatility measured by the expected value of the selected volatility indicator. Using the Standard and Poor's Composite Return Index and three volatility indicators (the VIX, the standard deviation of historical returns, and a GARCH(1,1)-fitted indicator), we study a predictive model with a set of the selected market state variables, such as past excess stock returns, current indicated volatility level, aggregate dividend yield, changes in the aggregate consumption, changes in the production output, and stock earnings. The daily risk premiums follow similar patterns for the three volatility indicators with the GARCH(1,1) indicator providing the most consistent predictability. While a positive relation between the intertemporal risk premium and volatility is plausible, the correlations between unexpected returns and volatility indicators are mixed with different volatility indicators. For the selected sample data, we find both strong leverage and volatility feedback effects. Finally, we discuss a portfolio strategy to show the predictive power of the model.