Abstract

http://ssrn.com/abstract=1405459
 
 

References (27)



 
 

Citations (3)



 


 



The Equity Risk Premium amid a Global Financial Crisis


John R. Graham


Duke University; NBER

Campbell R. Harvey


Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

May 14, 2009


Abstract:     
We analyze the history of the equity risk premium from surveys of U.S. Chief Financial Officers (CFOs) conducted every quarter from June 2000 to March 2009. The risk premium is the expected 10-year S&P 500 return relative to a 10-year U.S. Treasury bond yield. The last two surveys were conducted during the darkest parts of a global financial crisis and our results show that the equity premium sharply increased during the crisis. The survey also provides measures of cross-sectional disagreement about the risk premium, skewness, and a measure of individual uncertainty. The level of disagreement in late 2008 and early 2009 is 64% higher than 2007 levels. We also present evidence on the determinants of the long-run risk premium. Our analysis suggests the level of the risk premium closely tracks both market volatility (reflected in the VIX index) as well as credit spreads.

Number of Pages in PDF File: 19

Keywords: Cost of capital, financial crisis, equity premium, long-term market returns, long-term equity returns, expected excess returns, disagreement, individual uncertainty, skewness, asymmetry, survey methods, risk and reward, TIPs, VIX, Credit spreads

JEL Classification: G11, G31, G12, G14

working papers series


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Date posted: May 17, 2009  

Suggested Citation

Graham, John R. and Harvey, Campbell R., The Equity Risk Premium amid a Global Financial Crisis (May 14, 2009). Available at SSRN: http://ssrn.com/abstract=1405459 or http://dx.doi.org/10.2139/ssrn.1405459

Contact Information

John Robert Graham
Duke University ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Campbell R. Harvey (Contact Author)
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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