Session 5: Equity Risk Premiums

We started the class by completing the last loose ends on risk free rates, before turning our attention to equity risk premiums and what they purport to measures. We looked at historical risk premiums and their limits and then extended the discussion to estimate equity risk premiums for countries without much historical data. If you want to look at the historical returns on stocks, bills, bonds, real estate and gold in the United States, you can get the historical data at:
pages.stern.ny...
We will come back talk about alternatives to historical risk premiums in the coming sessions.
If you are interested in seeing what the equity risk premiums look like, by country, take a look at the spreadsheet at the link below:
pages.stern.ny...
On the riskfree rate front, try these two posts that I have on the topic, one to negative risk free rates and other to the Fed’s power (or lack of it) to set rates. Here are the links to those:
1. aswathdamodara...
2. aswathdamodara...
Start of the class test: pages.stern.ny...
Slides: pages.stern.ny...
Post class test: pages.stern.ny...
Post class test: pages.stern.ny...

[@r.a.p.h4481]

2:55 Start 34:00 Equity Risk Premiums 34:00 Historical 40:20 Country Risk Premium 58:20 Company Risk Premium

[@debrajdey2773]

9:31 Wrap up of risk free rate

[@ajnil]

Your dedication over the years towards all the uploads etc. Is commendable. I follow you and respect you kinda like a fan. Though I don't understand much lol

[@surbjitsingh3261]

Hey, I like your desire to learn. Heres what I recommend: go through linear algebra, statistics, accounting and some basic economics. Then come back to this. And I promise it'll all make sense. But... it requires serious work in understanding the essence of everything that comes before it. otherwise the way youäll learn will be mechanical and not fluid.

[@alexandruolaru7855]

The phrase "God decided to put the oil in the riskiest part of the globe" made me deeply think about that.

[@marcwhite6267]

Some of the Middle Eastern ones are relatively safe.

[@marcwhite6267]

Well, and then there's Norway.

[@julanivishal]

Actually i think default risk does not cancel out like we subtract it during risk free rate and add in risk premium because we also Multiply risk premium to beta which is more than or less than one.

[@JamieDelour]

Thanks Mr Damodaran!

[@Ganesh-y7m2k]

Professor @Ashwathdamodaran you are saviour to us! I had a doubt, you mentioned that risk averse investors get higher Equity Risk premium, can you explain that how this could occur? Please do help me sir.

[@michrick11]

Just wondering where the link is to the valuation tools webcast mentioned at 10:11 in the video. Thanks.

[@harshalrathod2289]

Hello Sir, I had one doubt in calculating risk premium. In approach 2, if 97% revenue are from US, should we use country risk premium of US too. Can Formula be (0.03*7.89+0.97*5)!

[@julanivishal]

Country risk premium for us is zero. That 5 you using is equity risk premium for us market.

[@mahmoudbadr9335]

If i am valuing a commpany for example in Saudi Arabia, and the investor is in saudi arabia (he will not move money from another country), should I account for country risk premium in the discount rate or country risk premium is applied in the discount rate only for foreign investor?

[@sajeeshkumarms9855]

If your country has more investment from FII, they will do that. They are marginal investors. They will decide the stock price.

[@julanivishal]

Country risk will be applied in both cases bruh.

[@upasnabatra1]

Risk-free rate in USA is 3.88%. Dec Inflation in USA was 6.50% and Inflation in India was also 6.50%. Going by the logic of difference in inflation to arrive at risk-free rate, it would give me the same risk-free rate in India as in the USA. Food for thought ??

[@sumanthasaha61]

You should follow this approach for countries that do not have any sovereign rating. India has a rating, so follow the previous approach.

[@julanivishal]

No us and India don't have same inflation I think.

[@ajinkyapalande85]

Grate economist

[@Rocket_Man]

Yes he is👍🏿

[@Rocket_Man]

Shreddin tha markets🤙🏿

[@ВикторияД-в8й]

Thanks!

[@songman1955]

sound is messed up?

[@juanvicencio2390]

Video is not working

[@bhaskarbaruah433]

No This is not what he is trying to communicate.