Is a higher market risk premium good?
A higher premium implies that you would invest a greater share of your portfolio into stocks. The capital asset pricing also relates a stock's expected return to the equity premium. A stock that is riskier than the broader market—as measured by its beta—should offer returns even higher than the equity premium.
What does a higher risk premium mean?
The market risk premium is measured as the slope of the security market line (SML) associated with the CAPM model. The market risk premium is broader and more diversified than the equity risk premium, which only considers the stock market. As a result, the equity risk premium is often higher.
Why is market risk premium high?
There are actually five types of risk premium – business risk, financial risk, liquidity risk, exchange-rate risk, and country-specific risk.
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[PDF] Does the Market Risk Premium (MRP) Change Over Time?
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[PDF] Working Paper - IESE Business School
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