ETF Overview: Risk Premiums for Some Countries.

"RUSSIAN RTS INDEX $ (priced in USD)" trades at eight times earning, meanwhile S&P500 has 14.891 (approximately 13-14 P/E for next year). Assume that US Equity market is correctly priced. So, based on the comparative P/E ratio we conclude that investors agree to pay only 54 cents for one dollar of profit. Is it normal? Actually I don't know. Let's estimate risk premium for some countries.

Equity Risk Premium (US).

First metric is difference between the geometric average of historical rates of returnable on equity market and 10-years Treasury Bonds - 9.26% and 4.97% respectively (for the period 1928-2009). Premium is equal 4.29% (see Historical Returns on Stocks, Bonds and Bills - United States, for instance).

Second one - difference between current or expected Earn-Price ratio and current 10-years Treasury Bonds Yield (we used current Earn-Price ratio). It's aproximately 4.09%. If we assume that expected P/E is equal 14, given this, we get 4.52%.

At the third, Implied Equity Risk Premium. Parameters used in model and results see in following table.