Expectations of Equity Risk Premia, Volatility and Asymmetry from a Corporate Finance Perspective

40 Pages Posted: 20 Dec 2001 Last revised: 25 Oct 2010

See all articles by John R. Graham

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)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2001

Abstract

We present new evidence on the distribution of the ex ante risk premium based on a multi-year survey of Chief Financial Officers (CFOs) of U.S. corporations. Currently, we have responses from surveys conducted from the second quarter of 2000 through the third quarter of 2001. The results in this paper will be augmented as future surveys become available. We find direct evidence that the one-year risk premium is highly variable through time and 10-year expected risk premium is stable. In particular, after periods of negative returns, CFOs significantly reduce their one-year market forecasts, disagreement (volatility) increases and returns distributions are more skewed to the left. We also examine the relation between ex ante returns and ex ante volatility. The relation between the one-year expected risk premium and expected risk is negative. However, our research points to the importance of horizon. We find a significantly positive relation between expected return and expected risk at the 10-year horizon.

Suggested Citation

Graham, John Robert and Harvey, Campbell R., Expectations of Equity Risk Premia, Volatility and Asymmetry from a Corporate Finance Perspective (December 2001). NBER Working Paper No. w8678, Available at SSRN: https://ssrn.com/abstract=294727

John Robert Graham

Duke University ( email )

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Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

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United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

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