Market Risk Premium Used in 2008 by Professors: A Survey with 1,400 Answers

21 Pages Posted: 16 Feb 2009 Last revised: 21 Apr 2009

Date Written: April 16, 2009

Abstract

The average Market Risk Premium (MRP) used in 2008 by professors in the USA (6.3%) was higher than the one used by their colleagues in Europe (5.3%). We also report statistics for 18 countries: the average MRP used in 2008 ranges from 4.1% (Belgium) to 10.5% (India).

The dispersion of the MRP used was high: the average MRP used by professors of the same institution range was 3.5% and the one of the same country was 6.9%.

The average MRP used in 2007 was 1.5% lower than the one used in 2000. 15% of the professors decreased their MRP in 2008 (1.5% on average) and 24% increased it (2% on average). 66% of the professors used a lower MRP in 2007 than in 2000 (22% used a higher one).

Most surveys have been interested in the Expected MRP, but this survey asks about the Required MRP. The paper also contains the references that professors use to justify their MRP, and comments from 180 professors that illustrate the various interpretations of what is the required MRP and explain the confusion of students and practitioners about its concept and magnitude.

We also report 416 answers from the field: the average MRP used by European Companies in 2008 was 6.4%.

Keywords: equity premium puzzle, equity premium, market risk premium, survey

JEL Classification: G12, G31, M21

Suggested Citation

Fernandez, Pablo, Market Risk Premium Used in 2008 by Professors: A Survey with 1,400 Answers (April 16, 2009). Available at SSRN: https://ssrn.com/abstract=1344209 or http://dx.doi.org/10.2139/ssrn.1344209

Pablo Fernandez (Contact Author)

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

HOME PAGE: http://web.iese.edu/PabloFernandez/

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