Estimates of the equity risk premium implied by analyst forecasts — generally 2 to 4 percent — are often significantly below realized equity returns of 6 percent. Measurement error could result from conservative assumptions, reliance upon consensus rather than detailed forecasts, the use of...

This paper tests whether and to what extent the value premium is induced by financial inflexibility risk. In this context, financial flexibility refers to the ability of a firm to alter investment expenditure to mitigate exogenous shocks, so as to generate a smooth dividend stream. Consistent...