The Market Risk Premium: Expectational Estimates Using Analysts' Forecasts
Robert S. Harris
University of Virginia - Darden School of Business
Felicia C. Marston
University of Virginia - McIntire School of Commerce
Journal of Applied Finance, Vol. 11, 2001
Abstract:
Using expectational data from financial analysts, we estimate a market risk premium for US stocks. Using the S&P 500 as a proxy for the market portfolio, the average market risk premium is found to be 7.14% above yields on long-term US government bonds over the period 1982-1998. This risk premium varies over time; much of this variation can be explained by either the level of interest rates or readily available forward-looking proxies for risk. The market risk premium appears to move inversely with government interest rates suggesting that required returns on stocks are more stable than interest rates themselves.
JEL Classification: G31, G12
Accepted Paper Series
Suggested Citation
Harris, Robert S. and Marston, Felicia C., The Market Risk Premium: Expectational Estimates Using Analysts' Forecasts. Journal of Applied Finance, Vol. 11, 2001. Available at SSRN: http://ssrn.com/abstract=285557
