The Long-Run Equity Risk Premium

13 Pages Posted: 9 Sep 2005

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)

Date Written: September 9, 2005

Abstract

We present expectations of the equity risk premium measured over a 10-year horizon relative to a 10-year U.S. Treasury bond based on a survey of U.S. Chief Financial Officers (CFOs). This multi-year survey has been conducted each quarter from June 2000. Each quarter the survey also provides measures of cross-sectional disagreement about the risk premium, skewness, and a measure of individual uncertainty. The individual uncertainty is deduced from the 80% confidence interval that each respondent provides for his or her risk premium assessment. We also present evidence on the determinants of the long-run risk premium. Our analysis suggests that there is a positive correlation between the ex ante risk premium and real interest rates as reflected in Treasury Inflation Indexed Notes.

Keywords: Cost of capital, equity premium, long-term market returns, long-term equity returns, expected excess returns, disagreement, individual uncertainty, skewness, asymmetry, survey methods, risk and reward

JEL Classification: G11, G31, G12, G14

Suggested Citation

Graham, John Robert and Harvey, Campbell R., The Long-Run Equity Risk Premium (September 9, 2005). Available at SSRN: https://ssrn.com/abstract=795369 or http://dx.doi.org/10.2139/ssrn.795369

John Robert Graham

Duke University ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)

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

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,838
Abstract Views
8,830
Rank
16,934
PlumX Metrics