Author : Steffi M. Braun
Publisher : VDM Publishing
ISBN 13 : 9783836454995
Total Pages : 100 pages
Book Rating : 4.4/5 (549 download)
Book Synopsis Searching for the Right Market Risk Premium by : Steffi M. Braun
Download or read book Searching for the Right Market Risk Premium written by Steffi M. Braun and published by VDM Publishing. This book was released on 2008-01-01 with total page 100 pages. Available in PDF, EPUB and Kindle. Book excerpt: The cost of equity is complex to estimate as investors require a premium for bearing risk. Finance experts have for years been dealing with a precise and practice-orientated model to estimate the cost of equity. In 1964/65, Sharpe and Lintner developed the Capital Asset Pricing Model, which is now widely accepted and used in finance practice. According to the CAPM, the cost of equity is calculated by adding a risk premium to the risk free rate. This risk premium includes the market risk premium. There exist several approaches how to estimate the market risk premium. They can be roughly categorized into historical approaches and forward-looking models. This book endeavours to summarize and classify existing models as well as to evaluate their theoretical background, accuracy, and practicability. It will present a clear understanding of the market risk premium and the pros and cons of the different calculation methods to conclude on the most appropriate approach to determine the market risk premium. The calculation models are evaluated according to predefined criteria and the most suitable from each category is chosen to be applied to Austria, Germany, and the United Kingdom.