Required market risk premium among countries in 2012

Abstract

This paper contains the statistics of the Equity Premium or Market Risk Premium (MRP) used in 2012 for 82 countries. We got 7192 answers for 93 countries, but we only report the results for 82 countries with more than 5 answers.

Most previous surveys have been interested in the Expected MRP, but this survey asks about the Required MRP. The paper also contains the references used to justify the MRP.

The great dispersion of the answers to the survey shows that the assumption of a representative investor (or homogeneous expectations …) has little to do with the real world.

This survey also links with the Equity Premium Puzzle. It may be explained by the fact that many market participants use historical data and advice from textbooks and finance professors. Consequently, ex-ante equity premia have been high, most market prices have been consistently undervalued, and the ex-post risk premia has been also high. Many investors use historical data and textbook prescriptions to estimate the required and the expected equity premium, the undervaluation and the high ex-post risk premium are self fulfilling prophecies.