Can you please explain the following non-sequitur from Prof. Damodaran ERP blog. STATEMENT 1: “Over the last decade, the expected return on stocks has stayed surprisingly stable at between 8-9% and almost all of the variation in the ERP over the decade has come from the risk free rate.
Professor Aswath Damodaran (New York University Stern School of Business) has so far posted a series of five data updates on his blog, “Musings on Markets.” His includes an examination of the equity risk premium (ERP), and the others include data related to bond markets, “playing the numbers game,” insights into risk, hurdle rates, and funding costs. The ERP is a favorite topic of the professor, and he does not use static historical data in estimating ERP because he says you’ll get some very strange-looking numbers.
Instead, he uses a forward-looking method he calls the “implied” ERP, which he says is “an estimate of the price that investors are demanding for the risk of investing in equities. I back this number out from the current market prices and expected future cash flows, an IRR for equities that is analogous to the yield to maturity on a bond.” He computed the ERP at the start of 2019 to be 5.96%, up from 5.08% on Jan.
Residence, Nationality Alma mater ( & ) Occupation Professor Employer Known for and research Awards Richard L. Rosenthal Award for Innovation in Investment Management and Corporate Finance Website Aswath Damodaran is a of at the at (Kerschner Family Chair in Finance Education), where he teaches. He is best known and famous as author of several widely used academic and practitioner texts on,.
Damodaran is widely quoted on the subject of valuation, with 'a great reputation as a teacher and authority'. He has written several books on equity valuation, as well on corporate finance and investments. He is also widely published in leading journals of finance, including The Journal of Financial and Quantitative Analysis, The, The and the. He is also known as being a resource on valuation and analysis to investment banks on Wall Street. Prior to joining NYU, he served as at the from 1984 to 1986. He was profiled in as one of the top 12 U.S.
Professors; he has also received awards for excellence in teaching from both universities. Damodaran also teaches on the Program, an alliance of, the and, and for the, which is a joint program between Stern and the. He also teaches the 'Valuation' Open Enrollment program for Stern Executive Education. Widely recognized for his online contribution in the world of valuation, Aswath Damodaran is also a teacher for the 'Advanced Valuation' and 'Corporate Finance' online certificates at.
Damodaran holds and degrees from the, along with a in from and an MBA from the.