Investing - Theory, News & General • What equity risk premium and "risk-free" asset do you use?

I check the latest equity risk premium from Aswath Damodaran, Prof of Finance at NYU

I mean, with two endorsements right in a row, we must be right!

Thank you everyone. Really good discussion!

Question for Svensk and Nice UnparticularMan:

Which of the several ERPs at Professor Damodaran's website do you use?

"Implied ERP on August 1, 2025= 3.84% (Trailing 12 month, with adjusted payout); 4.15% (Trailing 12 month cash yield); 5.66% (Average CF yield last 10 years); 3.90% (Net cash yield); 3.76% (Normalized Earnings & Payout) (with the US treasury rate of 4.24% used as the riskfree rate in US dollars; increase each of the premiums by the default spread (0.17%)for the US, if you are netting that out of the treasury to get to an adjusted dollar riskfree rate of 3.97%)"

My understanding is the "Normalized Earnings & Payout" ERP is the best for forward projections. Is that your understanding? Do you increase by the default spread?

I know this is getting down in the weeds and one shouldn't be misled as to the level of precision that is warranted. Nevertheless, I hope to have a deep understanding of the tools that I use.

Thanks again!

Statistics: Posted by buckeye7983 — Sat Aug 30, 2025 9:35 am — Replies 10 — Views 481

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