Huge Dispersion of the Risk-Free Rate and Market Risk Premium Used by Analysts in USA and Europe in 2015

14 Pages Posted: 3 Nov 2015 Last revised: 12 Oct 2017

See all articles by Pablo Fernandez

Pablo Fernandez

University of Navarra - IESE Business School

Alberto Ortiz Pizarro

University of Navarra, IESE Business School

Isabel Fernández Acín

University of Navarra - University of Navarra, Students

Date Written: October 11, 2017

Abstract

We look at the Risk-Free Rate (RF) and the Market Risk Premium (MRP) used by analysts in 2015 to value companies of six countries.

The dispersion of both, the RF and the MRP used, is huge, and the most unexpected result is that the dispersion is higher for the RF than for the MRP.

We also find that some analysts have more freedom than others do. The data permits other comparisons. For example: Does it make sense that the average MRP used for Germany is higher than the average MRP used for France, Italy, Spain or the UK?

Most of the analysts use a RF higher than the yield of the 10-year Government bonds. A reason for it and for the huge dispersion may be the activity of the European Central Bank (ECB). The risk-free rate is the required return to Government bonds when nobody (not even the ECB) manipulates the market. A question arises: May we consider the Quantitative Easing (QE) implemented by the ECB in 2014 and 2015 “market abuse”, “market manipulation”, a way of “altering competitive markets”…?

Keywords: analyst, market risk premium; required equity premium; risk-free rate

JEL Classification: G12, G31, M21

Suggested Citation

Fernandez, Pablo and Ortiz Pizarro, Alberto and Fernández Acín, Isabel, Huge Dispersion of the Risk-Free Rate and Market Risk Premium Used by Analysts in USA and Europe in 2015 (October 11, 2017). Available at SSRN: https://ssrn.com/abstract=2684740 or http://dx.doi.org/10.2139/ssrn.2684740

Pablo Fernandez (Contact Author)

University of Navarra - IESE Business School ( email )

Camino del Cerro del Aguila 3
28023 Madrid
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

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

Alberto Ortiz Pizarro

University of Navarra, IESE Business School ( email )

Camino del Cerro del Águila, 3
Madrid, 28023
Spain

Isabel Fernández Acín

University of Navarra - University of Navarra, Students ( email )

Pamplona
Spain

Register to save articles to
your library

Register

Paper statistics

Downloads
2,483
Abstract Views
6,863
rank
5,056
PlumX Metrics