Report
The spread between US and euro-zone equity risk premia
The spread between equity risk premia in the United States and the euro zone has increased considerably since 2016, with relative stability in the equity risk premium in the euro zone and a sharp fall in that in the United States. Are we able to explain the widening of the spread between equity risk premia in the two markets? Possible explanations are: The equilibrium between supply and demand for equities. We examine share buybacks and non-resident buying flows in particular; The fact that if the long-term interest rate is abnormally low, investors think that it will rise, which mechanically drives up the measured equity risk premium; Differing sensitiv it ies to risk aversion in the US and European markets, due for example to the more international nature of the European market. An empirical analysis shows that the spread between US and euro-zone equity risk premia seem s to have reacted primarily to the long-term yield spread .
Provider
Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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