Hi,
Do you know in which cases I should use Short term and Long term risk free rates on calculating equity risk premium?
Fama-french uses Short term and all others Long term?
Tks!
I haven’t reviewed that chapter in a few weeks, but from what I remember you want to use the rate that corresponds to the time horizon of the investment.
T-bill - short term
T-bond - long term
Might also want to keep in mind that if the yield curve is upward sloping using a T-bond rate (instead of a T-bill rate) will cause the estimated equity risk premium to be lower.