Daily Archives: May 4, 2018 at 10:25 am EDT

Research Review | 4 May 2018 | Equity Risk Premium

The Equity Risk Premium in 2018
John R. Graham and Campbell R. Harvey (Duke University)
March 27, 2018
We analyze the history of the equity risk premium from surveys of U.S. Chief Financial Officers (CFOs) conducted every quarter from June 2000 to December 2017. The risk premium is the expected 10-year S&P 500 return relative to a 10-year U.S. Treasury bond yield. The average risk premium is 4.42% and is somewhat higher than the average observed over the past 18 years. We also provide results on the risk premium disagreement among respondents as well as asymmetry or skewness of risk premium estimates. We also link our risk premium results to survey-based measures of the weighted average cost of capital and investment hurdle rates. The hurdle rates are significantly higher than the cost of capital implied by the market risk premium estimates.
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Macro Briefing: 4 May 2018

US-China trade talks end with no deal: Bloomberg
US warns China over militarization of the South China Sea: Reuters
US job cuts fall 40% in April after surging in March: CG&C
Jobless claims in US rise after falling to lowest level since 1969: MW
Worker productivity in US rose at sluggish rate in Q1: WaPo
US Services PMI ticks up to 3-mo high in April, signaling solid growth: IHS Markit
ISM Mfg Index: growth downshifts in US services sector in April: CNBC
Solid pace of US factory orders points to ongoing mfg growth: Freight Waves
S&P 500 tests 200-day moving average intra-day and then bounces higher: