Ex-ante equity risk premia: Expectational estimates using stock market returns forecasts in the emerging equity market

Aleksandar Naumoski, Metodija Nestorovski
2018 Panoeconomicus  
We estimated the ex-ante equity risk premium for the Republic of Macedonia, which is a young, small and open emerging market. We polled academics and practitioners for their expectations on the stock market index MBI10 as a proxy for market portfolio. The risk premium is the expected MBI10 return relative to a government bond yield. Using the Kolmogorov-Smirnov and Anderson-Darling goodness-of-fit tests we determined the best fitted statistical distribution, and consequently estimated the
more » ... term ERP of 8.55 and long-term average ERP for the next 10 years of 7.76. The estimated ex-ante ERP is higher and similar as it is in the other emerging markets. ante equity premia based on equity market return forecasts using survey approach and indirectly derives the expected ERP. The rest of the paper is organized as follows: Section 1 gives a look at the exante equity premium as price of equity risk and the characteristics of emerging equity markets; in Section 2 a review of the literature is presented; the empirical methodology is described in Section 3; our dataset and estimation results are shown in Section 4; and Section 5 provides a conclusion.
doi:10.2298/pan130925004n fatcat:5kv3t5dfxfhwffnrtogwp5uqpa