Musings on Markets (damodaran.com) · 2026-03-15 · 81d

Estimating Equity Risk Premiums: From Historical Data to Forward-Looking Models

An examination of how equity risk premiums are estimated and priced in financial markets, arguing that forward-looking implied premiums derived from stock prices and cash flows are superior to historical approaches. The author demonstrates how implied equity risk premiums shift dynamically during market crises and should be updated regularly for accurate company valuations.

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Metrics in this report

Equity Risk Premium - Crisis Peak

8.4%

approximate peak

Two months after September 2008 crisis start

Equity Risk Premium - Crisis Start

4.2%

point estimate

September 12, 2008

Historical Equity Risk Premium Benchmark

4.23%

65-year average

US equities long-term

Historical Equity Risk Premium Range

5.5-14.5%

range

US equities at start of 2026

Implied Equity Risk Premium

4.23%

point estimate

S&P 500 at start of 2026

Oil Price

100+$/barrel

elevated level

March 2026 geopolitical crisis