Risk Premia

Risk premia refers to the additional return investors expect for holding investments that carry higher risk compared to safer options. Because uncertain investments—like stocks—can fluctuate in value, investors need a reward to compensate for this potential volatility. This extra return is called the risk premium. Essentially, it’s the “bonus” investors seek to be willing to take on more risk, enabling them to earn potentially higher returns than they would with safer assets like government bonds.