Using a value-weighted rather than an equally weighted regression, Easton and Sommers (2007) show that the upward bias in the risk premium implied by analysts' earnings forecasts falls to 1.6%, but remains statistically and economically significant. In this paper, we argue that any estimation of...

In this paper, it is argued that previous estimates of the expected cost of equity and the expected arithmetic risk premium in the UK show a degree of upward bias. Given the importance of the risk premium in regulatory cost of capital in the UK, this has important policy implications. There are...