Liquidity risk premium in costing of equity capital

Editorial Board Member,

Journal of Risk Management in Financial Institutions, 2010, vol. 4, issue 1, 8-11

Abstract: Return-on-equity (R-o-E) is a broadly adopted financial performance measure used to comparatively assess financial returns on equity deployed, providing a consistent revenue measure across different risk enterprises. This paper reviews some of the assumptions inherent in modern financial theory which underlie the use of R-o-E metrics. One key to such an hypothesis is an assumed ergodic behaviour of the risk enterprise. A failure of ergodic behaviour to hold leads to a required adjustment to the R-o-E metric in order to circumvent pro-cyclical risk consequences.

Keywords: ergodic; risk; uncertainty; return-on-equity (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:aza:rmfi00:y:2010:v:4:i:1:p:8-11

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