TA-25 risk premium halved over past 9 years [pg. 16]

April 28, 2006 03:45
1 minute read.


Dear Reader,
As you can imagine, more people are reading The Jerusalem Post than ever before. Nevertheless, traditional business models are no longer sustainable and high-quality publications, like ours, are being forced to look for new ways to keep going. Unlike many other news organizations, we have not put up a paywall. We want to keep our journalism open and accessible and be able to keep providing you with news and analyses from the frontlines of Israel, the Middle East and the Jewish World.

As one of our loyal readers, we ask you to be our partner.

For $5 a month you will receive access to the following:

  • A user experience almost completely free of ads
  • Access to our Premium Section
  • Content from the award-winning Jerusalem Report and our monthly magazine to learn Hebrew - Ivrit
  • A brand new ePaper featuring the daily newspaper as it appears in print in Israel

Help us grow and continue telling Israel’s story to the world.

Thank you,

Ronit Hasin-Hochman, CEO, Jerusalem Post Group
Yaakov Katz, Editor-in-Chief


Risk premiums on Tel Aviv-25 index stocks fell to about 3.5 percent from 6% between 1997 and 2005 "and in particular in the last two years," according to a study released Thursday by the Bank of Israel. The downward trend in risk premiums is characteristic of other markets throughout the world too, the researchers noted. "Globalization has certainly contributed" to the lower premiums by opening up markets and facilitating investment in emerging markets, GIFT Asset Management currency analyst Eran Basson explained. Investors, he suggested, are willing to receive lower risk premiums due to their desire to vary their portfolios and their confidence in the economy of the country in question, whether India, China or Israel. One example of the trend is in the shrinking cushion between the US and shekel interest rates, which has been reduced from at least 1.5 percentage points in past years to "only" about one-quarter point currently, Basson said. "Yet the shekel is still gaining strength and there is still inflow of foreign investment," he noted, despite the lower compensation for the risk of investing in Israel. In comparison, some interest rates in Latin America hover around 15% - granting about a 10-percentage point cushion above the current US level - "and that certainly attracts investors' attention," Basson said, particularly when the US interest rate hit 1%, or among investors from Japan, where the interest rate is 0%. Nonetheless, the increased freedom is a two-way street, Basson warned, and the damage likely to be caused by a massive flight of foreign investors from an emerging market could well be greater than if the money had never come in, he suggested. "In my opinion, the risks are actually greater, not lesser," he said. Risk premium on the NIS/US$ exchange rate, as well, fell from about 2% to 1% between 1997 and 2005, the researchers noted. The risk premium is the excess return required by investors on their investment in a financial asset. The higher the perceived risk of an asset, the higher the return required to compensate for the risk. In the study, researchers Elena Pompushko of the central bank's monetary department and Yoel Hecht of the Bank Supervisor Yoav Lehman's office presented a new method for measuring the risk premium on assets traded in the capital market, which allows the premium to be calculated on a continuous basis in the course of trading on the stock exchange.

Join Jerusalem Post Premium Plus now for just $5 and upgrade your experience with an ads-free website and exclusive content. Click here>>

Related Content

The Teva Pharmaceutical Industries
April 30, 2015
Teva doubles down on Mylan, despite rejection