scholarly journals The Risk Averse Investor's Equilibrium Equity Premium in a Semi Martingale Market with Arbitrary Jumps

2016 ◽  
Vol 8 (6) ◽  
pp. 139
Author(s):  
George M. Mukupa ◽  
Elias R. Offen ◽  
Edward M. Lungu
Keyword(s):  
Utility Function ◽  
Risk Premium ◽  
Rare Event ◽  
Equity Premium ◽  
Risk Averse ◽  
Bond Price ◽  
Risk Free Rate ◽  
Negative Exponential ◽  
Exponential Utility Function ◽  
Free Rate

In this paper, we study the risk averse investor's equilibrium equity premium in a semi martingale market with arbitrary jumps. We realize that,  if we normalize the market, the equilibrium equity premium is consistent to taking the risk free rate $\rho=0$ in martingale markets. We also observe that the value process affects both the diffusive and rare-event premia except for the CARA negative exponential utility function. The bond price always affect the diffusive risk premium for this risk averse investor.

scholarly journals Earnings Expectations during the COVID-19 Crisis*

2020 ◽  
Vol 10 (4) ◽  
pp. 598-617 ◽  
Author(s):  
Augustin Landier ◽  
David Thesmar
Keyword(s):  
Risk Premium ◽  
Earnings Forecasts ◽  
Earnings Expectations ◽  
Forecast Revisions ◽  
Asset Risk ◽  
Equity Values ◽  
Oxford University ◽  
Risk Free Rate ◽  
Published Paper ◽  
Free Rate

Abstract We analyze the dynamics of earnings forecasts and discount rates implicit in valuations during the COVID-19 crisis. Forecasts over 2020 earnings have been progressively reduced by 16%. Longer-run forecasts have reacted much less. We estimate an implicit discount rate going from 8.5% in mid-February to 11% at the end of March and reverting to its initial level in mid-May. Over the period, the unlevered asset risk premium increases by 50bp, the leverage effect also increases by 50bp, while the risk free rate decreases by 100bp. Hence, analysts’ forecast revisions explain all of the decrease in equity values between January 2020 and mid-May 2020. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

A Monetary Explanation of the Equity Premium, Term Premium, and Risk-Free Rate Puzzles

1996 ◽  
Vol 104 (6) ◽  
pp. 1135-1171 ◽  
Author(s):  
Ravi Bansal ◽  
Wilbur John Coleman
Keyword(s):  
Equity Premium ◽  
Term Premium ◽  
Risk Free Rate ◽  
Free Rate

scholarly journals Development of the Risk Accumulation Method for Calculating the Capitalization Rate

2021 ◽  
pp. 7-14
Author(s):  
Nikolai Yu. Trifonov
Keyword(s):  
Risk Adjustment ◽  
Risk Premium ◽  
Stock Exchange ◽  
Country Risk ◽  
Monetary Unit ◽  
Capitalization Rate ◽  
Country Risk Premium ◽  
Risk Free Rate ◽  
The Relationship ◽  
Free Rate

Risk build-up method is the most used for calculating the capitalization rates. With the help of the literature analysis, the origin of this method is considered. The method was based on the relationship between risk and profitability of a stock in exchange trading, proven statistically. Later, when formulating the build-up method, this idea was transferred without any justification to the valuation of enterprises that do not list their securities on stock exchange. In other words, the formulas traditionally used in the application of the build-up method are empirical in nature and not precise.It is more accurate to write them down by analogy with Irwin Fisher's equation of returns. Based on the principle of dependence, one of the main ones for the valuation procedure, the essence of which is that the value of the valuation subject depends on its economic location, a set of four independent risks is given for use in the build-up method in general case: risk-free rate, country risk premium, branch risk premium, and subject risk adjustment. It is noted that the numerical value of these parameters used in the method fundamentally depends on the monetary unit used in the calculation (the valuation currency). Recommendations are given on finding a risk-free rate for various currencies, on calculating country risk premium, branch risk premium, and subject risk adjustment. The article is intended for academics, lecturers, and practitioners in such areas as corporate finance, business microeconomics, valuation, and investment analysis.

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