Estimating the Market Risk Premium Using Data from Multiple Markets

Martin Lally and John Randal

The Economic Record, 2015, vol. 91, issue 294, 324-337

Abstract: type="main" xml:id="ecor12190-abs-0001">

This paper develops an estimator for a country's market risk premium that involves optimally combining an estimator based upon only local data and the cross-country average of these estimators. The analysis suggests that the usual practice of invoking only local data to estimate a country's market risk premium is significantly inferior to the use of a cross-country average or a combined estimator with high weighting on the cross-country average.

Date: 2015
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