Equity Risk Premium
We recommend the use of an equity risk premium in Europe (“ERP”) of
7.5%
as of 31 March 2021
Please note that the ERP shall be accompanied by appropriate risk-free rate, beta and size and country risk premium. Further guidance is provided below.
Size Premium
Based on our research and the financial data available in Europe, we observe a clear pattern that size premium in Europe exists, thus we recommend to use the size premium. The size premium presented below is consistent with the equity risk premium recommendation.
Quartile 1
Quartile 2
Quartile 3
Quartile 4
0%
Market capitalization > 7 961 EUR mil
0%
Market capitalization <= 7 961 EUR mil and > 2 485 EUR mil
1%
Market capitalization <= 2 485 EUR mil and > 828 EUR mil
2%
Market capitalization <= 828 EUR mil
Country Risk Premium
Based on our research and the financial data available in Europe, we observe a clear differences in European regions, thus we recommend to use the country risk premium. The country risk premium presented below is consistent with the equity risk premium recommendation.