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.
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