There’s this question on the online question bank about determining the risk premium for a stock using the GGM, with a 1.5% adjustment for company size. This company’s revenues and earnings are cyclical in terms of both the business cycle as well as seasonality. After calculating the required return for the company’s equity, to get to the risk premium I subtracted the short-term government bond yield (since last time I subtracted the long-term yield and got it wrong, I was at that time told that the short-term is appropriate since the company is cyclical), wrong again… Someone please help me make sense of this, there’s no explanation in the answer. When do we use the short and when the long yields?
You use short term bond yields only in Fama French model. Everywhere else its long term yield.
^Basically
That I can remember. Any particular reason why? Only FF or the extended Pastor one with liquidity as well?