Abstract

http://ssrn.com/abstract=959703
 
 

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The Equity Risk Premium in January 2007: Evidence from the Global CFO Outlook Survey


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

January 25, 2007


Abstract:     
We analyze the results of the most recent survey of U.S. Chief Financial Officers (CFOs) which looks ahead to the first quarter of 2007 and beyond. We present expectations of the equity risk premium measured over a 10-year horizon relative to a 10-year U.S. Treasury bond. This multi-year survey has been conducted every quarter from June 2000 to November 2006. 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 there is a positive correlation between the ex ante risk premium and real interest rates as reflected in Treasury Inflation Indexed Notes. The level of the risk premium also appears to track market volatility as reflected in the VIX index.

Number of Pages in PDF File: 20

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, TIPs, VIX

JEL Classification: G11, G31, G12, G14


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Date posted: January 28, 2007  

Suggested Citation

Graham, John R. and Harvey, Campbell R., The Equity Risk Premium in January 2007: Evidence from the Global CFO Outlook Survey (January 25, 2007). Available at SSRN: http://ssrn.com/abstract=959703 or http://dx.doi.org/10.2139/ssrn.959703

Contact Information

John Robert Graham
Duke University ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)
National Bureau of Economic Research (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
Duke Innovation & Entrepreneurship Initiative ( email )
215 Morris St., Suite 300
Durham, NC 27701
United States

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