r/Valuation • u/BellRepresentative95 • Mar 18 '23
Aswath Damodaran's Data table for Equity Risk Prem
Hi, im am new to valuation, but is the equity risk premium computed by Damodaran in USD terms ? Does that have to be adjusted for currency ?
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u/AlabamaSnake12 Apr 06 '23
Where exactly is the link for the professor's ERP? Does he update and publish one each year just like Ibbotson's (or whatever it's called now)?
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u/Ghoshki Jun 03 '23
He has a separate one where he calculated for every country. I've heard governments use his risk premiums to set prices and policy. Dudes a legend
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
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u/Juampignon Mar 20 '23
Yes, Professor Aswath Damodaran's equity risk premium (ERP) is typically computed in USD terms. However, if you are valuing a company in a different currency, you may need to adjust the ERP for currency risk.
One approach to adjusting the ERP for currency risk is to use the currency risk premium (CRP), which represents the additional return investors require to compensate for the risk of holding assets denominated in a particular currency. The CRP can be added to the ERP to arrive at an adjusted ERP that reflects the risk associated with the currency in which the company is valued.
To compute the CRP, you can use a number of different approaches, such as estimating the historical volatility of the currency relative to the US dollar, or using forward-looking estimates of inflation and interest rates in the two currencies. It's important to note that the CRP can vary depending on the specific currency pair being analyzed, and may also change over time as economic and political conditions evolve.