Market Risk Premium by Country
Implied equity risk premium, for use as a CAPM market return input.
Source: Damodaran Online (NYU Stern) — country equity risk premiums · January 2026 · last verified 2026-09-12
How the market risk premium is used
The market risk premium — also called the equity risk premium (ERP) — is the extra return equity investors require over a risk-free government bond for taking on the additional risk of holding stocks. It varies by country because local market risk varies: developed markets with stable currencies and deep liquidity generally carry lower ERPs than emerging markets, where political and currency risk push the required premium higher. This tool returns a fixed country ERP estimate from a reference table. It is not derived from live market prices, and it does not update as markets move.
The ERP is the (Rm − Rf) term in the CAPM formula: multiply it by a stock's beta and add the risk-free rate to get an expected return. That CAPM-derived expected return then typically feeds into a company's cost of equity, one of the two inputs to the WACC calculator.
Frequently asked questions
- What is implied equity risk premium?
- The extra return equity investors require over the risk-free rate for a given market, backed out from current index prices, expected cash flows, and growth rates rather than historical averages.
- How do I use this for CAPM?
- Add the country's implied ERP to your risk-free rate to get an expected market return, then use that as the (Rm - Rf) component in the CAPM calculator.
- What is the equity risk premium (ERP)?
- The equity risk premium is the extra return investors demand for holding stocks instead of risk-free government bonds. It compensates investors for the additional uncertainty of equity returns compared to a guaranteed bond yield.
- How is the implied market risk premium calculated?
- The implied ERP is backed out from current market prices — using a index's current level, expected future cash flows (dividends and buybacks), and expected growth rates to solve for the discount rate the market is implicitly using, then subtracting the risk-free rate.
- What is Damodaran's equity risk premium and why is it widely used?
- NYU professor Aswath Damodaran publishes implied and historical ERP estimates for the US and by country, using a transparent, published methodology. It is one of the most widely cited sources in academic and practitioner valuation work because it is free, regularly updated, and methodologically consistent across countries.
- Why do different countries have different ERPs?
- Country-level ERP reflects local market risk — political stability, currency risk, market liquidity, and economic volatility all vary by country. Emerging markets typically carry a higher ERP than developed markets like the US, UK, or Germany to compensate for that extra risk.
- How does the market risk premium feed into CAPM and WACC?
- The ERP is the (Rm − Rf) term in the CAPM formula — multiply it by a stock's beta and add the risk-free rate to get the expected return. That CAPM output is typically used as the cost of equity input to WACC.
- What is a typical ERP for developed markets?
- Developed-market ERPs have historically clustered in the 4–6% range, though the figure moves with market conditions — it tends to rise during periods of uncertainty and fall when markets are calm and richly valued.