The Long-Run Equity Risk Premium
John R. Graham
Duke University; National Bureau of Economic Research (NBER)
Campbell R. Harvey
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative
September 9, 2005
We present expectations of the equity risk premium measured over a 10-year horizon relative to a 10-year U.S. Treasury bond based on a survey of U.S. Chief Financial Officers (CFOs). This multi-year survey has been conducted each quarter from June 2000. Each quarter the survey also provides measures of cross-sectional disagreement about the risk premium, skewness, and a measure of individual uncertainty. The individual uncertainty is deduced from the 80% confidence interval that each respondent provides for his or her risk premium assessment. We also present evidence on the determinants of the long-run risk premium. Our analysis suggests that there is a positive correlation between the ex ante risk premium and real interest rates as reflected in Treasury Inflation Indexed Notes.
Number of Pages in PDF File: 13
Keywords: Cost of capital, equity premium, long-term market returns, long-term equity returns, expected excess returns, disagreement, individual uncertainty, skewness, asymmetry, survey methods, risk and reward
JEL Classification: G11, G31, G12, G14
Date posted: September 9, 2005
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