The implied equity risk premium - an evaluation of empirical methods

A new approach of estimating a forward-looking equity risk premium (ERP) is to calculate an implied risk premium using present value (PV) formulas. This paper compares implied risk premia obtained from different PV models and evaluates them by analyzing their underlying firm-specific cost-of-capital estimates. It is shown that specific versions of dividend discount models (DDM) and residual income models (RIM) lead to similar ERP estimates. However, cross-sectional regression tests of individual firm risk suggest that there are qualitative differences between both approaches. Expected firm risk obtained from the DDM is more in line with standard asset pricing models and performs better in predicting future stock returns than estimates from the RIM

The Implied Equity Risk Premium - An Evaluation of Empirical Methods

A new approach of estimating a forward-looking equity risk premium (ERP) is to calculate the implied risk premium using present value (PV) formulas. This paper compares implied risk premia obtained from dierent PV models and evaluates them by analyzing their underlying firmspecific cost-of-capital estimates. It is shown that specific versions of dividend discount models (DDM) and residual income models (RIM) lead to similar ERP estimates. However, the results of cross-sectional regression tests of individual firm risk suggest that there are qualitative dierences between both approaches. Expected firm risk obtained from the DDM is more in line with standard asset pricing models and performs better in predicting future stock returns than estimates from the RIM.equity risk premium, cost of capital, expected stock returns

Passive investing before and after the crisis: investors' views on exchange-traded funds and competing index products

Investment in exchange-traded funds (ETFs) has been remarkably robust in the course of the recent financial crisis. This paper analyzes investors' perceptions of ETFs and other indexing products by comparing the answers to two surveys of ETF users carried out in 2008 and 2009, before and after the height of the financial crisis. We find that the crisis has divided the ETF market in two segments. Whereas ETFs in standard asset classes have been unaffected by the crisis, ETFs for alternative asset classes face challenges. However, ETFs are generally well ranked in comparison to other indexing products – presumably because of an increased focus on liquidity and transparency

Tracing the gender wage gap: Income differences between male and female university graduates in Germany

"The aim of this paper is to shed light on the causal mechanisms leading to the gender wage gap, drawing on neoclassical as well as sociological labor market theories. A unique dataset from the 2001/2002 Mannheim University Social Sciences Graduate Survey, which overcomes several limitations of standard population surveys when investigating the gender wage gap, is used for the empirical analysis. The sample is homogenous with respect to the measures normally used in income analyses - all of the respondents are university graduates, have a degree in the same field of study, and are observed at career entry. Furthermore, the dataset includes detailed measures of human capital, job search, and career attitudes, which are usually not included in standard population surveys. The results of a sequence of nested regression models show that none of these measures reduces the gender wage gap substantially: on the contrary, the introduction of variables capturing human capital even leads to a small increase in the gap. This indicates that the earnings differential between female and male graduates in the study would be even larger if women had the same human capital endowment as men. Considering that a wage gap of almost 7 percent remains even with the extensive set of variables in the analysis, there is some indication that female university graduates are facing wage discrimination on the German labor market." (Author's abstract, IAB-Doku) ((en))Hochschulabsolventen, Lohnunterschied, geschlechtsspezifische Faktoren, Lohndiskriminierung, Bildungsertrag

Measuring ambiguity preferences: a new ambiguity preference survey module

Ambiguity preferences are important to explain human decision-making in many areas in economics and finance. To measure individual ambiguity preferences, the experimental economics literature advocates using incentivized laboratory experiments. Yet, laboratory experiments are costly, time-consuming and require substantial administrative effort. This study develops an experimentally validated ambiguity preference survey module that can reliably measure ambiguity preferences when carrying out laboratory experiments is impractical. This toolkit may have wide applications, including end-of-session lab questionnaires, large scale surveys and financial client assessments

Towards a working density-functional theory for polymers: First-principles determination of the polyethylene crystal structure

Equilibrium polyethylene crystal structure, cohesive energy, and elastic constants are calculated by density-functional theory applied with a recently proposed density functional (vdW-DF) for general geometries [Phys. Rev. Lett. 92, 246401 (2004)] and with a pseudopotential-planewave scheme. The vdW-DF with its account for the long-ranged van der Waals interactions gives not only a stabilized crystal structure but also values of the calculated lattice parameters and elastic constants in quite good agreement with experimental data, giving promise for successful application to a wider range of polymers.Comment: 4 pages, 3 figure