Equity Risk Premium Model

    Latest Update: October 5, 2017 This model needs an update. Sign-up for alerts below to receive an email after we add the latest info to this model.
    Model Summary: This model uses interest rates, implied volatility, and the Constant Sharpe Approach to estimate the Equity Risk Premium, which is used as an input to our DCF-based share valuations.​
    Current ERP Estimate: 3.8%
ERP Model.xlsx
File Size: 1812 kb
File Type: xlsx
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Last Updated: February 22, 2017
2017 ERP Estimate: 5.0%
​Model Up Votes-to-Total Votes: 70%
Summary of Model Estimates: In general I have a bullish outlook on the market for 2017 based on the following:
  • Trump's expected business deregulation initiatives and corporate tax reform (including the repatriation tax) could begin soon and may drive an increase in reinvestment in the US Economy. In the long-term, I believe Trump's economic policies will eventually bring some form of financial crisis (possibly with the overvalued stock market as the underlying asset bubble) but as for 2017, I think the market will continue to propel to higher levels. To reflect this view I have incorporated a total return of 18% on the S&P500 into my ERP model. 
  • I believe the positive market conditions will cause interest rates to increase above 3% by the end of the year.
  • The VIX has been fluctuating on the low side this year (between 10-12%) despite some of the President's volatile decisions. I believe volatility will increase later in the year and reach a 12-month trailing average of 15.5%.
  • Based on these assumptions I expect the market's Equity Risk Premium to reach 5% by the end of 2017.
Paul DeAngelis ERP Model.xlsx
File Size: 1066 kb
File Type: xlsx
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