The expected market risk premium (MRP) is a crucial parameter for corporate valuations using
risk-adjusted discount rates. Despite its importance there is no consensus on its correct
estimation. This book provides a conceptual review of several estimation methods focused on
implied cost of capital but also including historical averages and return decomposition. In
addition these methods are applied in a comprehensive empirical study for six key equity
markets (Canada France Germany Japan UK and USA). While professionals predominantly rely
on historical averages the empirical results demonstrate that the expected MRP is volatile
over time and related to the market price level particularly during the recent financial
crisis. The findings suggest to reject the usage of unconditional historical averages and to
apply conditional estimates according to the Stichtagsprinzip instead.
