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Average market risk premium in South Africa 2011-2020

The average market risk premium in South Africa was 7.9 percent in 2020. Market premium risk represents the difference between return on equities and a risk-free investment, which is normally associated with short-term government bonds. For comparison, the U.S. market premium risk amounted to 5.6 percent in the same year.

Risk-free rate

Most analysts consider the U.S. treasury rate to be the risk-free rate for the term of their investment, assuming the United States government will not default. Just as consumers in the Unites States get a credit rating, agencies such as Standard & Poor’s rate countries’ credit risks. Using these data, analysts compute the country-specific default risk, which in turn has an influence on the value of risk-free rate.

What influences the return on equities?

The economic factors such as political stability in a country, inflation rate, level of indebtment, trade deficit and investments have an influence on the activities of companies and their valuation on the stock exchanges. Apart from the economic cycle, the company’s operations itself, which are reflected in the results published in the financial reports, can boost or diminish the stock returns.

Average market risk premium in South Africa from 2011 to 2020

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Sources

Release date

March 2020

Region

South Africa

Survey time period

2011 to 2020

Number of respondents

81 countries with 1,946 answers

Special properties

finance and economics professors, analysts and managers

Method of interview

Email survey

Supplementary notes

According to the source, pages 10 and 11, the report is presenting required market risk premium (or equity premium) defined as: "incremental return of a diversified portfolio (the market) over the risk-free rate required by an investor."

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