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Consulting to the Ultra Affluent

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The size of the equity risk premium-the incremental return that shareholders require to hold risky equities rather than risk-free securities-is a key issue in corporate finance. Financial economists generally measure the equity premium over long periods of time in order to obtain reliable estimates. These estimates are widely used by investors, finance professionals, corporate executives, regulators, lawyers, and consultants. But because the 20th century proved to be a period of such remarkable growth in the U.S. economy, estimates of the risk premium that rely on past market performance may be too high to serve as a reliable guide to the future. 2003 Morgan Stanley.
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