Wednesday, 4 November 2015

Risk-Free Rate and Market Risk Premium Used by Analysts for 2015

Professor Pablo Fernandez and colleagues from the University of Navarra - IESE Business School have just released the annual survey Risk-Free Rate and Market Risk Premium Used by Analysts for 2015 (access 2014 and 2013 here).

In addition to the survey numbers themselves (personally, I use the money supply growth rate as the minimum "risk-free" rate rather than a government bond yield), I especially liked these two comments from the report,
Most of the analysts use a Risk-Free Rate (RF) higher than the yield of the 10-year Government bonds. A reason for it and for the huge dispersion may be the activity of the European Central Bank (ECB). The risk-free rate (RF) is the required return to Government bonds when nobody (not even the ECB) manipulates the market.
A comment about the Quantitative Easing (QE) implemented by the ECB in 2014, 2015... It is just a strange synonym for “print a lot of money (euros) and buy many, many bonds of the countries in the EU”. By doing so, bond prices increase (and bond yields decrease) dramatically. Some people refer to this “QE” as “market abuse of the ECB”, “market manipulation”, “altering competitive markets”, “expropriation of savings”… We agree with all this definitions: they are clearer than “QE”.

Echo that!

Read the full report here.  

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