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| Author: | O'Hanlon, J. Steele, A. |
| Title: | Estimating the equity risk premium using accounting fundamentals |
| Journal: | Journal of Business Finance and Accounting
2000 : NOV/DEC, VOL. 27:9&10, p. 1051-1084 |
| Index terms: | COSTS RISK RESIDUAL INCOME |
| Language: | eng |
| Abstract: | This study uses recent developments in the theoretical modelling of the links between unrecorded accounting goodwill, accounting profitability and the cost of equity, together with Capital Asset Pricing Model (CAPM) betas, to estimate the ex-ante equity risk premium in the UK. The results suggest that, over the sample period from 1968 to 1995, the premium has been in the region of 5%. The authors' estimate lends support to the view that the ex-ante equity risk premium is substantially less than the historical average of the excess of equity returns over the risk-free rate, and is similar to the rates applied recently by UK competition regulators. |
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