Equity Risk Premium by Sector

Methodology

Data. The universe is the S&P 500. Alpha Vantage's COMPANY_OVERVIEW endpoint provides each company's trailing P/E and beta, and one TREASURY_YIELD call (10-year, monthly) provides the risk-free rate. Earnings yield is 1 / trailing P/E as a percentage, and equity risk premium here is earnings yield − 10-year Treasury yield. Companies with a zero or negative trailing P/E (trailing losses) are excluded. A negative P/E doesn't mean a negative earnings yield. It means the ratio isn't meaningful.

Versus Implied Equity Risk Premium. This is a much simpler measure than Implied Equity Risk Premium, which uses Aswath Damodaran's forward-looking FCFE/DCF model. What's used here is the "Fed model" comparison (trailing earnings yield vs. the long bond), which can be computed per sector and per stock from Alpha Vantage data. Damodaran's model gives a single market-wide number. The Fed model has known blind spots. It ignores growth expectations (a fast grower and a stagnant company with the same trailing P/E get the same premium), and it is sensitive to inflation, since Treasury yields move with inflation expectations but trailing earnings don't adjust the same way.

Beta vs. ERP. The scatter asks whether the market prices risk rationally: riskier (higher-beta) stocks should trade at a higher earnings yield, which would show as a positive relationship. A flat or negative one is common in practice, because high-beta growth names often carry rich P/Es because of their growth profile. Both a linear (Pearson) and a rank-based (Spearman) fit are shown, since one can mislead when the relationship isn't linear.

Refreshes weekly (Saturday). A trailing-P/E earnings yield only moves when a company reports new earnings or its price moves a lot, so a daily refresh would mostly be noise. Sector and company name come from each stock's COMPANY_OVERVIEW response, GICS-normalized the same way as Sector Beeswarm.