The Risk Premium Factor: A New Model for Understanding the Volatile Forces that Drive Stock Prices, + Website

"Stephen Hassett is onto something. His notion that the risk premium on stocks is not constant, but varies with the risk free rate, helps to explain an enduring puzzle: why actual stock prices vary from the estimates that analysts' models imply. This book will offer fresh and provocative insight to careful students of the stock market. Read it and grow wiser."—Robert F. Bruner, Dean and Charles C. Abbott Professor of Business Administration, Darden Graduate School of Business, University of Virginia

"The equity risk premium is a key input to the cost of capital. During periods of economic stability, practitioners typically used an estimate of the long-term average equity risk premium, typically adjusting the estimate once a year. But all that changed as the crisis in late 2008 unfolded. In these uncertain economic times, we have found the Risk Premium Factor Valuation Model to be a powerful tool for adjusting our equity risk premium estimate as we move through the rapidly changing business cycle. We recommend that practitioners use the Risk Premium Factor Valuation Model to better understand the economic interrelationships that drive the pricing of the broad stock market and the equity risk premium."—Roger J. Grabowski, Managing Director, Duff & Phelps LLC and coauthor of Cost of Capital: Applications and Examples

"Understanding and accurately estimating the cost of capital is fundamental to making decisions that create value. Stephen Hassett's Risk Premium Factor Valuation Model provides an easy-to-understand approach to estimating the cost of equity capital that is accessible and insightful to those with a basic understanding of finance and expert practitioners alike. Further, it demystifies the drivers of market valuation and provides a compelling and often under-appreciated linkage between growth and stock price. It will enrich the perspective of any investor or manager."—David M. Kostel, Managing Director and Co-Head of Healthcare Mergers & Acquisitions, Credit Suisse