Ch.10 · Benchmarks and Performance Evaluation · medium
What is the 'long-term equity return premium' (equity risk premium) concept?
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EXPLANATION
The equity risk premium (ERP) is the additional return investors demand for investing in equities rather than risk-free assets (government bonds). Historically, equity has delivered 4-7% above risk-free rates over long periods globally. In India, equities have delivered significant premium over fixed deposits over 10+ year periods, justifying the higher short-term volatility.
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