RBI paper attributes equity returns in India to falling Equity Risk Premium
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New Delhi, Oct. 19 -- A paper written by RBI officials from the Division of Financial Markets, published on Monday in the monthly bulletin for October estimated that returns in Indian stocks over the past few years came from a fall in equity risk premium (ERP) rather than earnings.
The paper provides insight into the puzzle of rising stock prices despite sluggish earnings growth. However it also highlights the risks posed by the rally driven by lower risk perceptions among investors rather than fundamental changes in earnings. The paper is written by RBI employees but does not necessarily represent the views of the central bank.
The paper focuses on estimating ERP which is the extra return that investors demand in return for holding a r...
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