The Equity Risk Premium Across European Markets: An Analysis Using the Implied Cost of Capital

42 Pages Posted: 17 Oct 2011

See all articles by Christoph Jäckel

Christoph Jäckel

Technische Universität München (TUM)

Katja Mühlhäuser

Technische Universität München (TUM)

Date Written: October 17, 2011

Abstract

Using a large data set of companies from 16 European countries over the period between January 1994 and May 2011, we estimate the equity risk premiums applying an implied cost of capital approach. We find estimates that are consistently larger than those in previous studies, ranging from 4.4% to 6.9% across countries. Our main conclusion is that a positive trend over our sample period is responsible for the high estimates in comparison to previous studies. The trend is accompanied by declining risk-free rates over our estimation period, suggesting a much greater stability in the absolute return on equity than often assumed by classical asset pricing models.

Keywords: time-varying risk premia, equity premium, implied cost of capital

JEL Classification: G12

Suggested Citation

Jäckel, Christoph and Muehlhaeuser, Katja, The Equity Risk Premium Across European Markets: An Analysis Using the Implied Cost of Capital (October 17, 2011). Available at SSRN: https://ssrn.com/abstract=1945311 or http://dx.doi.org/10.2139/ssrn.1945311

Christoph Jäckel

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, 80333
Germany
+49 (0)89 289 25487 (Phone)

HOME PAGE: http://www.fm.wi.tum.de/en/team/researcher/91-christoph-jaeckel

Katja Muehlhaeuser (Contact Author)

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, 80333
Germany

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