Investors who estimate the intrinsic value of assets or boutiques s are making explicit judgments about the equity risk premium (when they use DCF models) or implicit judgments (when they use book value or multiples). What, me worry? There are investors who argue that owning shares, with or without voting rights, gives you little say in the management or corporate governance of most companies and that the dilution of voting rights should therefore have no effect on what you should pay. Second, if you buy into this view, you have effectively lost the right to complain about your lack of say in decision making. For example, let’s say that Bill’s Brews just won an award for “Best American Ale” this year. The Dow Jones was developed by Charles Henry Dow and originally contained just 12 American companies. American Intl Group, Inc. (AIG) – Shares of American Intl Group, Inc. are back above $42. Oracle Corp. (ORCL) – Shares of Oracle Corp were slightly higher on Thursday.
stock futures pared losses in the minutes leading up to the opening bell on Wall Street Thursday morning, pushing into the green even after a record number of unemployment claims were shown to have been filed last week. Since the equity risk premium (ERP is a number for the entire stock market, it is determined by the overall characteristics of the investor population and macroeconomic factors. Even in the real estate market, the capitalization rate operates as a measure of expected return and the difference between that rate and the risk free rate is a measure of the risk premium in real estate. While it is always foolhardy to talk about “one” number encapsulating the stock market, I think the equity risk premium comes closest to meeting the requirements for such a number. A survey of CFOs by Harvey and Graham yields a 3.50% equity risk premium but another one by Fernandez yields higher numbers (5-5.5% for the US and higher values for emerging markets).