Session 6: Implied Equity Risk Premiums and Betas

In this session , we started by doing a brief test on the relationship between prices and risk premiums. We spent the rest of the class about the dynamics of implied equity risk premiums and what makes them go up, down or stay unchanged. We then moved to cross market comparisons, first by comparing the ERP to bond default spreads, then bringing in real estate risk premiums and then extending the concept to comparing ERPs across countries. Finally, I made the argument that you should not stray too far from the current implied premium, when valuing individual companies, because doing so will make your end valuation a function of what you think about the market and the company. If you have strong views on the market being over valued or under valued, it is best to separate it from your company valuation. In the final part of the session, we looked at the flaws of regression betas and why they can be gamed or misleading.
Start of the class test: pages.stern.nyu.edu/~adamodar...
Slides: pages.stern.nyu.edu/~adamodar...
Post class test: pages.stern.nyu.edu/~adamodar...
Post class test: pages.stern.nyu.edu/~adamodar...

[@luispacheco9683]

I have the same problems in my country with "I don't know why" specialists in finance! So many finance errors are the mainstream on valuation! Keep up with your FANTASTIC work!

[@ElectricPiya]

This is true when Mr. Damodaran says that Indian equities are overvalued. Asian paints is held by too many invesment managers that they go gaga over its PAT every quarter. Doesn't matter what the PAT is, you are still paying ₹69 for their ₹1 of PAT (EPS).

[@sebaaalbadawi9178]

Can you please explain how you used the value of the index if that is not the real market capital value...or are the cach flows divided by the index divisor

[@surge8307]

Really enjoyed this lecture, watched it twice so I don't miss anything!

[@harshitporwaliitb5268]

I have a question regarding what you explained about securitization which caused real estate market to behave like stock market. In the covid times there was a similar situation when gold was moving similar to stock market prices. why Is that? Gold is already traded and is looked as an hedge against inflation right? So why this happened?

[@simonroese2596]

The best!!!

[@julanivishal]

Calculating risk premium by this way can create a problem sir if many of the stocks in index is overvalued than r is going to be less. By this way we are finding r that are assumed by the other investors( it may not be right.)

[@bhanuvohra4681]

Hello Sir,
Could you please help me understand the following:-
1) high growth rate would lead to high expected equity return. Therefore shouldn’t it result in High Equity risk premium?
2) During inflation if T bond rate increases with low expected equity return, shouldn’t the Equity risk premium be low?
3) what effect does high growth rate has on expected equity return? Does it increase or decrease?
4) Are all the above points merely an outcome of the price paid?
Please help me clear this doubt

[@Michael_NV]

1:30

[@r.a.p.h4481]

1:03:50 Discount Rates III - Relative Risk measures

[@designerarvid]

Come for the material on implied equity risk premiums, stay for the jokes about hyperactive over sharing gopro customers.

[@thehappypet4158]

Should we use the price that we pay to be exposed to the entire market using SPY ETF? Because the Index does not reflect a price.

[@sebaaalbadawi9178]

I have the same question...appreciate if you explain it

[@thehappypet4158]

just use the index

[@sebaaalbadawi9178]

@@thehappypet4158
And what about dividend and buybacks...

[@abdulrahmanfaqiri9375]

Hi
Do you know how to find dividend and buybacks of sp500
Also, the expected growth rate for earnings

[@sahilthakur5906]

Hie Aswath

[@heramb575]

28:40

[@Hulk-gm4jw]

No audio heard

[@AswathDamodaranonValuation]

Give it a few minutes to process.

[@Hulk-gm4jw]

@@AswathDamodaranonValuation thank You aswath.