The Equity Risk Premium in 2008: Evidence from the Global CFO Outlook Survey

20 Pages Posted: 19 Jul 2008 Last revised: 25 Jul 2008

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

Date Written: July 22, 2008

Abstract

We analyze the results of a recent survey of U.S. Chief Financial Officers (CFOs) conducted in 2008. 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 March 2008. 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. Using our time series of risk premia, we explore the link between these premia and real interest rates implied in Treasury Inflation Indexed Notes, stock market volatility represented by the VIX index, past stock market returns and equity valuation reflected in price to earnings ratios.

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

Suggested Citation

Graham, John R. and Harvey, Campbell R., The Equity Risk Premium in 2008: Evidence from the Global CFO Outlook Survey (July 22, 2008). Available at SSRN: https://ssrn.com/abstract=1162809 or http://dx.doi.org/10.2139/ssrn.1162809

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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