The Market Risk Premium: Expectational Estimates Using Analysts' Forecasts

26 Pages Posted: 22 Dec 2000

See all articles by Robert S. Harris

Robert S. Harris

University of Virginia - Darden School of Business

Felicia C. Marston

University of Virginia - McIntire School of Commerce

Multiple version iconThere are 2 versions of this paper

Date Written: 1999

Abstract

We use expectational date from financial analysts to estimate a market risk premium for U.S. stocks. Using the SP500 as a proxy for the market portfolio, we find an average market risk premium of 7.14% above yields on long-term U.S. government bonds over the period of 1982-1998. We also find that risk premium varies over time and that much of this variation can be explained by either the level of interest rates or readily available forward-looking proxies for risk. The market risk premium appears to move inversely with government interest rates suggesting that required returns on stocks are more stable than interest rates themselves.

Suggested Citation

Harris, Robert S. and Marston, Felicia C., The Market Risk Premium: Expectational Estimates Using Analysts' Forecasts (1999). Darden Business School Working Paper No. 99-08. Available at SSRN: https://ssrn.com/abstract=252671 or http://dx.doi.org/10.2139/ssrn.252671

Robert S. Harris (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4823 (Phone)
434-924-4859 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/harris.htm

Felicia C. Marston

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
804-924-1417 (Phone)

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