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2013 Country Equity Risk Premiums from Academia and Practitioners

| | Posted in: Equity Premium

What are the current academic and practitioner estimates of risk-free rates and of annual premiums over the risk-free rate demanded in each country by equity investors? In their June 2013 paper entitled “Market Risk Premium and Risk Free Rate Used for 51 Countries in 2013: A Survey with 6.237 Answers”, Pablo Fernandez, Javier Aguirreamalloa and Pablo Linares summarize the results of a May-June 2013 email survey “about the Market Risk Premium (MRP or Equity Premium) and Risk Free Rate that companies, analysts and professors use to calculate the required return on equity in different countries.” Based on 1,553/2,205/1,443 specific responses to the question from professors/analysts and financial companies/non-financial companies, respectively, around the world, they find that:

  • Regarding the MRP (equity risk premium):
    • Average equity risk premium estimates range from 5.0% for Chile and Singapore to 16% for Pakistan (see the charts below). Median estimates range from 5.0% for Germany and UK to 16.3% for Pakistan. The average (median) estimate for the U.S. is 5.7% (5.5%).
    • Weighting each country equally, the average worldwide equity risk premium is 7.2%. Weighting each specific response equally (with 46% of all responses for the U.S.), the average is 5.9%.
    • Where comparisons are possible, 49% (42%) of average (median) country equity risk premium estimates for 2013 are higher than those for 2012, and 40% (33%) are lower.
  • Regarding the risk-free rate:
    • Average (median) risk-free rate estimates range from 1.1% (0.9%) for Japan to 12.7% (12.5%) for Egypt. The average (median) estimate for the U.S. is 2.4% (2.2%).
    • Weighting each country equally, the average worldwide risk-free rate is 4.1%. Weighting each specific response equally (with again 46% of all responses for the U.S.), the average is 3.0%.
  • Respondents from non-financial companies tend to give somewhat lower estimates of the combined risk-free rate plus equity risk premium than the other two categories.

The following charts, taken from the paper, summarize average survey-based equity risk premiums by country, with variability ranges of one standard deviation around the average response.


In summary, the average equity risk premiums (required returns to equity above the risk-free rate) by country for 2013 from a broad survey of professors, analysts and companies range from 5.0% to 16% across 51 countries.

Cautions regarding findings include:

  • Subsamples for many countries are very small. There are at least 50 specific responses for only 14 countries. There are fewer than a dozen responses for more than half the countries tabulated.
  • Standard deviations of equity risk premium estimates vary considerably by country.
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