In this paper, the authors analyze the results of the most recent survey of US Chief Financial Officers (CFOs), which looks ahead to the first quarter of 2007 and beyond. They present the expectations of the equity risk premium measured over a ten-year horizon relative to a ten-year US Treasury bond. This multi-year survey has been conducted every quarter from June 2000 to November 2006. Each quarterly survey provides measures of cross-sectional disagreement about the risk premium, skewness, and a measure of individual uncertainty. The individual uncertainty is deduced from the 80% confidence interval that each respondent provides for his or her risk Premium assessment. The authors also present evidence on the determinants of the long run risk premium. The analysis suggests that there is a positive correlation between the ex ante risk premium and real interest rates as reflected in the Treasury Inflation Indexed Notes. The level of risk premium also appears to track market volatility as reflected in the VIX index.

We analyze the results of the most recent survey of Chief Financial Officers (CFOs) conducted by Duke University and CFO Magazine. The survey closed on November 21, 2006 and measures expectations beginning in the first quarter of 2007. In particular, we poll CFOs about their long-term expected return on the S&P 500. Given the current ten-year T-bond yield, we provide estimates of the equity risk premium and show how the premium changes through time. We also provide information on the disagreement over the risk premium as well as average confidence intervals.

The quarterly survey of CFOs was initiated in the third quarter of 1996. Every quarter, Duke University polls Financial Officers with a short survey on important topical issues (Graham and Harvey, 2006). The usual response rate for the quarterly survey is 5-8%. Starting in June, 2000, a question on expected stock market returns was added to the survey. Figure 1 summarizes the results from the risk premium question. While the survey asks for both the one-year and ten-year expected returns, we focus on the ten-year expected returns herein, as a proxy for the market risk premium.

The Equity Risk Premium in January 2007: Evidence from the Global CFO Outlook Survey,quarter, premium, survey, expected, quarterly, Financial, confidence, disagreement, provides, expectations, equity, reflected, authors, conducted, Treasury, uncertainty, important, information, Inflation, intervals, initiated, Magazine, multiyear, correlation, positive, Premium, determinants, estimates, respondent