Market Risk Premium

The market risk premium is the additional return investors expect for choosing to invest in the overall stock market instead of a risk-free asset, like government bonds. It reflects the compensation investors seek for taking on the higher uncertainty and potential volatility associated with stocks. Essentially, it represents how much extra profit investors demand to accept the risk of potential losses in the stock market compared to a safer, guaranteed investment. The size of this premium varies over time based on economic conditions and investor sentiment.