Market risk premium

A country’s average premium for equity investments

Luca Trevisan avatar
Written by Luca Trevisan
Updated over a week ago

The market risk premium is the additional return awarded to those who invest in companies’ equity. It is computed on a country basis as the difference between the average gains of enterprises’ equity over a meaningful time period (minimum of 12 months) and the respective risk free rate.

In an economy, this return rewards the standard, non-diversifiable risk of investing in companies’ shares rather than in the risk free security. The higher a country’s premium, the riskier – on average – investing in companies in that country is, startups included.


Market risk premia by countries are estimated with different methods and published online twice a year by Prof. Aswath Damodaran of New York University.

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