Equity risk premium has increased while interest rates have fallen

News - February 2020 - No. 2

Authors Danmarks Nationalbank
Subject Economic activity and employment; Current economic and monetary trends; Financial markets; Monetary policy
Type News
Year 2020
Published 27 February 2020
Before the financial crisis, investors typically expected an annual return on equities of around 7 per cent, while the return on 10-year treasury bonds was around 4 per cent. Today, the return on 10-year treasury bonds is close to zero, while investors still expect a return of around 7 per cent when investing in equities. The risk premium for investing in the equity market rather than safe assets such as government bonds has thus doubled since the start of the financial crisis more than 10 years ago.