Abstract
Because of the substantial increase in stock market risk arising from the global financial crisis, it is not appropriate to use a constant market risk premium (MRP) when estimating the cost of equity. This is particularly so when estimates of the weighted average cost of capital include the current high risk premiums on debt but this is not ref lected in the equity MRP. We propose a method for adjusting the MRP to ref lect unusual risk situations.
| Original language | English |
|---|---|
| Pages (from-to) | 8-14 |
| Number of pages | 7 |
| Journal | JASSA |
| Issue number | 1 |
| Publication status | Published - 2011 |
| Externally published | Yes |
Keywords
- Cost of equity
- Global financial crisis
- Market risk premium
- Weighted average cost of capital (WACC)