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

by Stephen D. Hassett (Author)

A radical, definitive explanation of the link between loss aversion theory, the equity risk premium and stock price, and how to profit from it

The Risk Premium Factor presents and proves a radical new theory that explains the stock market, offering a quantitative explanation for all the booms, busts, bubbles, and multiple expansions and contractions of the market we have experienced over the past half-century.

Written by Stephen D. Hassett, a corporate development executive, author and specialist in value management, mergers and acquisitions, new venture strategy, development, and execution for high technology, SaaS, web, and mobile businesses, the book convincingly demonstrates that the equity risk premium is proportional to long-term Treasury yields, establishing a connection to loss aversion theory.

• Explains stock prices from 1960 through the present including the 2008/09 "market meltdown"
• Shows how the S&P 500 has consistently reverted to values predicted by the model
• Solves the equity premium puzzle by showing that it is consistent with findings on loss aversion
• Demonstrates that three factors drive valuation and stock price: earnings, long term growth, and interest rates

Understanding the stock market is simple. By grasping the simplicity, business leaders, corporate decision makers, private equity, venture capital, professional, and individual investors will fully understand the system under which they operate, and find themselves empowered to make better decisions managing their businesses and investment portfolios.

Front Jacket

Knowing what to look for in the stock market can give you a competitive edge, but understanding the system itself--right down to the booms, busts, and bubbles of the past half-century--changes everything.

In The Risk Premium Factor: A New Model for Understanding the Volatile Forces That Drive Stock Prices, Stephen D. Hassett presents a radical new theory--the "factor" that explains theentire stock market, providing a definitive link between loss aversion theory, the equity risk premium, and stock price, and shows how you can make the most of the connection.

Where others have tried and failed to find a link between loss aversion and the processes that control how investors set prices in the stock market, The Risk Premium Factor succeeds. Demonstrating that the equity risk premium is proportional to long-term Treasury yields, the book establishes for the first time a quantitative connection between loss aversion and equity risk premium.

This remarkable new concept can be used to explain stock prices from 1960 through to the present day, including the 2008 financial meltdown, not through theories and simulations, but with historical data that bear out the truth. It shows how the S&P 500 has consistently reverted to predicted values and solves the equity premium puzzle by showing that it is consistent with findings on loss aversion. Putting you back in the driver's seat when it comes to investing, the book clearly demonstrates the stock market's reptilian-like response to three factors drive valuation and stock price: earnings, long-term growth, and interest rates. This book also includes a companion website with historical data, calculators, and links to additional apps and readings.

Dispelling the notions that the stock market is a mysterious arbiter of value, when, in fact, it is easy to understand the Risk Premium Factor Valuation Model is a game-changer for anyone who works in investments--from professional investors to corporate decision makers to private individuals. After all, if you don't understand how the market values businesses, you don't really understand the market at all.

Back Jacket

THE RISK PREMIUM FACTOR

Knowing what to look for in the stock market can give you a competitive edge, but understanding the system itself--right down to the booms, busts, and bubbles of the past half-century-- changes everything.

In The Risk Premium Factor: A New Model for Understanding the Volatile Forces That Drive Stock Prices, Stephen D. Hassett presents a radical new theory--the "factor" that explains the entire stock market, providing a definitive link between loss aversion theory, the equity risk premium, and stock price, and shows how you can make the most of the connection.

Where others have tried and failed to find a link between loss aversion and the processes that control how investors set prices in the stock market, The Risk Premium Factor succeeds. Demonstrating that the equity risk premium is proportional to long-term Treasury yields, the book establishes for the first time a quantitative connection between loss aversion and equity risk premium.

This remarkable new concept can be used to explain stock prices from 1960 through to the present day, including the 2008 financial meltdown, not through theories and simulations, but with historical data that bear out the truth. It shows how the S&P 500 has consistently reverted to predicted values and solves the equity premium puzzle by showing that it is consistent with findings on loss aversion. Putting you back in the driver's seat when it comes to investing, the book clearly demonstrates the stock market's reptilian-like response to three factors drive valuation and stock price: earnings, long-term growth, and interest rates. This book also includes a companion website with historical data, calculators, and links to additional apps and readings.

Dispelling the notions that the stock market is a mysterious arbiter of value, when, in fact, it is easy to understand the Risk Premium Factor Valuation Model is a game-changer for anyone who works in investments--from professional investors to corporate decision makers to private individuals. After all, if you don't understand how the market values businesses, you don't really understand the market at all.

Author Biography

STEPHEN D. HASSETT is a corporate development executive with Sage North America, a subsidiary of The Sage Group plc, a leading global supplier of business management software and services. He has published in the Journal of Applied Corporate Finance and is a regular contributing author for the Seeking Alpha investment website. Previously, he was an executive at the Weather Channel, software entrepreneur and consultant with Stern Stewart & Co. He holds an MBA from the Darden School of Business at the University of Virginia.