Duff & Phelps Recommends Decreasing U.S. Equity Risk Premium from 5.5% to 5.0%

Duff & Phelps Recommends Decreasing U.S. Equity Risk Premium from 5.5% to 5.0%

NEW YORK – Duff & Phelps, the premier global valuation and corporate finance advisor, today announced that, based on current market conditions, it is decreasing its U.S. Equity Risk Premium (ERP) recommendation from 5.5% to 5.0%, effective as of September 5, 2017 and thereafter, until further guidance is issued. ERP, a key input used to calculate the cost of capital within the context of the Capital Asset Pricing Model (CAPM) and other models, changes over time and Duff & Phelps regularly reviews fluctuations in global economic and financial conditions to determine when reassessments of the selected ERP and accompanying risk-free rate are warranted.

As part of this analysis, Duff & Phelps goes beyond historical measures of ERP by examining approaches that are sensitive to the current economic and financial market conditions, including (but not limited to) the current state of U.S. equity markets, implied equity volatility and corporate credit spreads.

Based on trends observed in financial markets, the aggregate risk in U.S. markets appear to have declined since Duff & Phelps’ last change in ERP recommendation on January 31, 2016. This started to be apparent towards the end of 2016 after the U.S. presidential election, which marked a change in investor sentiment, accompanied initially by a rise in global interest rates, a sharp narrowing of credit spreads, a strengthening of the U.S. dollar, and a rally in equity markets to record highs. While there has been some disappointment around progress made on the U.S. legislative front, strong earnings growth, still-accommodative monetary policies, and benign macroeconomic trends have buoyed U.S. stocks. Additionally, corporate earnings have experienced solid and better-than-expected growth, fueling investor hopes for even higher dividend payouts and stock buybacks. Most recently, the announcement and subsequent discussions of a wide-ranging plan for U.S. tax reform, which includes a corporate statutory tax rate cut from 35% to 20%, has spurred further stock market records.

About Duff & Phelps

Duff & Phelps is the premier global valuation and corporate finance advisor with expertise in complex valuation, disputes and investigations, M&A, real estate, restructuring, and compliance and regulatory consulting. The firm’s more than 2,000 employees serve a diverse range of clients from offices around the world. For more information, visit www.duffandphelps.com.

M&A advisory, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory and capital raising services in Canada are provided by Duff & Phelps Securities Canada Ltd., a registered Exempt Market Dealer. M&A advisory, capital raising and secondary market advisory services in the United Kingdom and across Europe are provided by Duff & Phelps Securities Ltd. (DPSL), which is authorized and regulated by the Financial Conduct Authority. In Germany M&A advisory and capital raising services are also provided by Duff & Phelps GmbH, which is a Tied Agent of DPSL. Valuation Advisory Services in India are provided by Duff & Phelps India Private Limited under a category 1 merchant banker license issued by the Securities and Exchange Board of India.