Due to absence of historical data in many emerging economies, the equity risk premium often is estimated using the prospective method implied in the constant growth valuation model.

Question

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In the absence of historical data, the equity risk premium can be estimated using the prospective method implied in the constant growth valuation model, which assumes that the stock price will grow at a constant rate indefinitely into the future. This method uses forward-looking assumptions to estimate the required rate of return on equity, including the equity risk premium.

Due to Absence of Historical Data in Many Emerging Economies