Low risk premium has fuelled equity returns: RBI paper
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New Delhi, Oct. 20 -- Returns in Indian stock markets over the past few years have come on the back of falling equity risk premium (ERP) rather than earnings, this is according to a paper written by the Reserve Bank of India's (RBI) officials from the Division of Financial Markets, published in the monthly bulletin for October.
The paper provides some insight into the puzzle of rising stock prices despite sluggish earnings growth. However, it also highlighted the risks posed by a rally driven by lower risk perceptions among investors rather than fundamental changes in earnings. The paper is written by the RBI employees but does not necessarily represent the views of the central bank.
The paper focused on estimating ERP, which is the ext...
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