Stock Market Risk Premia: The Perspective of Financial Analysts

73 Pages Posted: 26 May 2023 Last revised: 13 Jul 2024

See all articles by Pascal Büsing

Pascal Büsing

University of Münster - Finance Center Münster

Hannes Mohrschladt

University of Muenster - Finance Center

Date Written: May 26, 2023

Abstract

We examine the time-series and cross-section of stock market risk premia from the perspective of financial analysts. Our novel approach is based on the notion that analysts' stock recommendations reflect both their subjective return expectations and their perceived stock risk. Thus, we can empirically infer presumed risk premia from recommendations and target price implied expected returns. In the time-series, analysts' presumed risk premia are countercyclical and strongly correlated with option-based estimates of the equity premium. In the cross-section, the presumed risk premia are comparably large for high-beta, small, and value stocks, lending support to a risk-based interpretation of these characteristics.

Keywords: Risk Premia, Subjective Return Expectations, Financial Analysts, Equity Premium

JEL Classification: G11, G12

Suggested Citation

Büsing, Pascal and Mohrschladt, Hannes, Stock Market Risk Premia: The Perspective of Financial Analysts (May 26, 2023). Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2023, Available at SSRN: https://ssrn.com/abstract=4460200 or http://dx.doi.org/10.2139/ssrn.4460200

Pascal Büsing

University of Münster - Finance Center Münster ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

Hannes Mohrschladt (Contact Author)

University of Muenster - Finance Center ( email )

Universitätsstr. 14-16
Muenster, 48143
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/fcm/en/the-fcm/lsf/team/hannes-mohrschladt

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