What are the current academic and practitioner estimates of the annual premiums over the risk-free rate demanded for each country by equity investors. In their April 2011 paper entitled “Market Risk Premium Used in 56 countries in 2011: A Survey with 6,014 Answers”, Pablo Fernandez, Javier Aguirreamalloa and Luis Corres summarize the results of a March-April 2011 email survey soliciting the Market Risk Premium (MRP) used “to calculate the required return to equity in different countries.” Based on 1,562/1,462/850 specific responses to the question from companies/analysts/professors, respectively, around the world, they find that:
- Average equity risk premium estimates range from 4.5% for Malaysia to 9.9% for Argentina (see the first chart below).
- There is no consistent evidence that one group of respondents tends to give higher or lower estimates than another (see the second chart below).
- The top five cited sources for the equity risk premium among all respondents, in descending order, are: Morningstar/Ibbotson, Damodaran, internal estimates, analysts/investment banks and personal experience/judgment.
The following chart, extracted from the paper, shows average estimates of the 2011 equity risk premiums for 56 countries (at least six responses for each country), with one standard deviation variability ranges.
The next chart also from the paper shows dispersions of average estimates of 2011 equity risk premiums by respondent type for 34 countries (at least two responses by respondent type for each country).
In summary, the average country equity risk premiums (required returns to equity) for 2011 from a broad survey of companies, professors and analysts range from 4.3% to 9.9% worldwide.
See “The 2011 U.S. Equity Risk Premiums from Academia and Practitioners” for a comparable summary for the U.S. equity risk premium.