The Equity Premium: Historical, Expected, Required and Implied

Abstract

Some of the confusion about the Equity Premium arises from not distinguishing among the four concepts that the phrase equity premium designates: Historical, Expected, Required and Implied. Finance and valuation textbooks do not help much: 88 out of 100 books identify expected and required equity premium, and 59 identify expected and historical equity premium. Their recommendations regarding the equity premium range from 3% to 10%.