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Estimating the Market Risk Premium Using Data from Multiple Markets
Author(s) -
Lally Martin,
Randal John
Publication year - 2015
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/1475-4932.12190
Subject(s) - estimator , weighting , econometrics , risk premium , economics , market data , statistics , mathematics , finance , medicine , radiology
This paper develops an estimator for a country's market risk premium that involves optimally combining an estimator based upon only local data and the cross‐country average of these estimators. The analysis suggests that the usual practice of invoking only local data to estimate a country's market risk premium is significantly inferior to the use of a cross‐country average or a combined estimator with high weighting on the cross‐country average.