Data
Cost of Equity Estimation Inputs
The inputs to the cost of equity estimation are presented below. They stem from our long-term research, which we will continue in the future. These inputs are updated on a monthly basis and published by end of the following month.
The calculation of the cost of equity is based on the commonly used Capital Asset Pricing Model (CAPM):
CoE = rf + 𝛽 × ERP
where rf is the risk-free rate (yield of the local sovereign bonds with 10Y tenor),
𝛽 is the beta coefficient, and
ERP is the equity risk premium.
Equity Risk Premium
The equity risk premium is estimated based on the current stock prices and expected dividends or free cash flows of stocks as an implied equity risk premium. The estimate is based on the publicly traded companies residing in European countries with the credit rating between Aa1 to Baa3 and is calculated as a 3-month average.
To estimate the cost of equity, the equity risk premium should be complemented by an appropriate risk-free rate and beta coeffficient.
The methodology of the equity risk premium calculation is available here.
6.8% as of 30 September 2026
medium companies (market capitalisation below EUR 1,314 million)
4.8% as of 30 September 2026
large companies (market capitalisation from EUR 1,314 million)
The smallest company included in the calculation of the equity risk premium as of 30 September 2026 has a market capitalisation of EUR 2 million and the largest EUR 316,697 million.
In cases where the company being valued is on the borderline between large and medium-sized companies, the user should carefully consider the specific circumstances. In this assessment, it is important to avoid a situation where applying a higher risk premium would imply a medium-sized company, while applying a lower risk premium would lead to a company value corresponding to a large company.
The complete historical time series of the equity risk premium is available here.
Country Risk Adjustment
The equity risk premium estimate presented above applies to large and medium companies headquartered in European countries with a sovereign rating ranging from Aa1 to Baa3 (according to Moody’s). The risk premium therefore reflects the risk of these countries and may not correspond to the premium required for companies from countries with a different rating. For European countries rated below Baa3, there are not enough publicly traded companies to perform a similar calculation. The suitable approach appears to be adjusting the equity risk premium for companies from countries rated Aa1 to Baa3 by an additional country risk premium derived from the bond market. This combination still makes use of the broad European sample of companies, which reflects the specifics of European companies and the related return required by investors on European equities. At the same time, it complements it with a market indication of the premiums required on bond markets in countries with a different rating. Both parts of the approach are thus based on current market data for European capital markets. A similar adjustment can also be made for companies from countries with the highest rating (Aaa).
The country risk adjustment is calculated as the product of two components. The first component is the difference between the CDS spreads of European countries rated Ba1–Ba3 (or Aaa) and the average CDS spread of European countries weighted by the market capitalization of the companies included in the ERP estimate. The second component is the ratio of the standard deviations of European equity and European bond returns, minus 1. The calculation is described on the next slide. Subtracting 1 ensures the adjustment reflects only the additional premium over the risk premium already included in the local government bond yield of a country with the given rating.
Country risk adjustment = (median sovereign CDS spread of the rating group − market-weighted sovereign CDS spread of the companies in the ERP estimate) × (σ stocks / σ bonds − 1)
Country risk adjustment as of 30 September 2026:
for companies headquartered in countries rated Aaa: −0.5%
for companies headquartered in countries rated Ba1–Ba3: +1.8%
As of 30 September 2026, the median sovereign CDS spread is 0.14% for countries rated Aaa and 1.93% for countries rated Ba1–Ba3. The market-weighted sovereign CDS spread of the companies included in the equity risk premium estimate is 0.51%. The ratio of equity market volatility to bond market volatility is 2.24. The published country risk adjustments are rounded to one decimal place.
The methodology for estimating the country risk adjustment forms part of the equity risk premium methodology (here).
The complete historical time series of inputs used to calculate the country risk adjustment is available here.
The current equity risk premiums adjusted for country risk for the individual rating groups (Aaa, Ba1–Ba3) and size groups (large and medium companies) are as follows:
medium companies (market capitalisation below EUR 1,314 million) as of 30 September 2026:
6.3% for companies headquartered in countries rated Aaa
8.6% for companies headquartered in countries rated Ba1–Ba3
large companies (market capitalisation from EUR 1,314 million) as of 30 September 2026:
4.3% for companies headquartered in countries rated Aaa
6.6% for companies headquartered in countries rated Ba1–Ba3