The Price Of Risk: An Equity Risk Premium Monologue

Aswath Damodaran15.04K FollowersFollow5ShareSavePlay(17min)CommentsSummaryThe process of estimating implied equity risk premiums on a continuing basis is driven less by intellectual curiosity and more by my need for these numbers, when I value companies.That process has taught me three lessons about equity risk premiums, and I have responded by altering my practices.The equity risk premium is an essential ingredient in almost every part of financial analysis, incorporated into hurdle rates in corporate finance, discount rates in valuation, and expected returns on equity in financial planning. Thanadon Naksanee/iStock via Getty Images I start my valuation classes with a question of whether valuation is an art or a science, and I argue that it is neither; it does not have the precision that characterizes a science and unlikeThis article was written byAswath Damodaran15.04K FollowersFollowI teach corporate finance and valuation at the Stern School of Business at New York University. I am a teacher first, who also happens to love untangling the puzzles of corporate finance and valuation, and writing about my experiences. As a result, I happen to be at the intersection of three businesses, education, publishing and financial services, that are all big, inefficiently run and deserve to be disrupted. I may not have the power to change the status quo in any of these businesses, but I can stir the pot. Please note that the article that you are reading here was originally written on my blog and is republished in Seeking Alpha and other forums. Consequently, I neither track nor respond to comments here. I am sorry! ==Editors' Note: Seeking Alpha monitors Dr. Damodaran blog and posts relevant articles on his behalf.