CFOs about ERP

From 2000 to 2017, a survey of 10,000 #CFOs was conducted regarding how they assess the risk premium of capital – that is, the difference between expected returns and ten-year T-Bonds. The diagram shows that there was a peak of 4.56%, with an average of 3.63%.

Comparing these figures with individual investors’ surveys reveals significant differences. For example, in 2004, according to the survey of 1,500 investors, the expected return was 12.8%. If we compare this figure with risk-free returns for the same period, the capital risk premium decreases to 8.3%. This doubling of individual investors’ expectations often surprises financial directors;

Institutional investor surveys (Shiller, UBS…) are closer to financial directors’ survey results than those of individual investors. Often, their evaluations are lower than CFOs’. For example, in 2020, it was as low as 2.5%.

Regarding the assessments of academics and analysts (Fernandez, Aguirreamalloa, and L. Corres; 2011), their average estimates range from 5.0% to 5.6%, with a standard deviation of up to 1.6%.

*Equity Risk Premiums (ERP): Determinants, Estimation, and Implications – The 2022 Edition Updated: March 23, 2022 Aswath Damodaran; Stern School of Business