In Schweser Book 1 Practice Test - Exam 2 - AM… There is a solution for equity risk premiums that uses weights of market integration and segmentation Equity Risk Premiums… is this even in the curriculum. If so, where? I swear I haven’t seen this one before.
Capital market forecasting
Got it… Thanks Tom. It’s 11 pages into that LOS… must be why I missed it.
i’m digging deep to remember this one… you need to do two calculations, one assuming full integration and the other assuming full segregation. 1: Rf + (correlation of asset with global mkts * std dev of asset) * (Mkt Risk Prem/mkt std dev) 2: Rf + std dev of asset * (Mkt Risk Prem/mkt std dev) + liquidity premium then weight by the % of integration and (1 - integ) then remember that beta = (correlation asset with market * std dev of asset) / std dev mkt and covariance = beta of asset 1 * beta of asset 2 * std dev of mkt
which topic is it under in the schweser notes… what’s the LOS statement?
ilvino Wrote: ------------------------------------------------------- > i’m digging deep to remember this one… > and covariance = beta of asset 1 * beta of asset 2 > * std dev of mkt I know you’re digging deep but: covariance = beta of asset 1 * beta of asset 2 * VARIANCE of mkt
ah, good catch sterling. it’s been a long day!
ilvino, you add teh liquidity premium in both cases
ng30 Wrote: ------------------------------------------------------- > ilvino, you add teh liquidity premium in both > cases One question: Just adding a twist, if they says for illiquid equity mkt add a risk premium of 0.5% and we have investment in Russia and Europe, would it be reasonable to add 0.5% only to derive ERP in Russia but NOT Europe? Thanks.