Proceedings of the 2025 4th International Conference on Public Service, Economic Management and Sustainable Development (PESD 2025)

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Understanding Risk Premium: A Conceptual and Practical Exploration in Modern Financial Markets

Authors
Xinyi Zhou1, *
1MS in Management, Lehigh University, Bethlehem, PA, 18015, United States
*Corresponding author. Email: xiz824@lehigh.edu
Corresponding Author
Xinyi Zhou
Available Online 22 December 2025.
DOI
10.2991/978-94-6463-916-2_18How to use a DOI?
Keywords
Risk Premium; Asset Pricing; CAPM; Investor Behavior; Market Volatility
Abstract

The risk premium is a significant aspect of contemporary finance, accounting for the additional return that investors require to undertake extra risk. While the role of the risk premium is fundamental to asset pricing theory and portfolio theory, its nature, determinants, and time-varying behavior remain points of controversy in academia and practice. The core theoretical frameworks, including utility theory and the Capital Asset Pricing Model (CAPM), are discussed and the various types of risk premium, including the equity premium, the credit premium, and the liquidity premium, are classified. The macroeconomic indicators, investor sentiment, and the behavior of the volatility of the risk premium are then examined. Historical records and case studies based on the conditions of the financial crisis are used to verify the results. The findings show that the risk premiums are not static but react to changes in the behavior and structure of the market.

Copyright
© 2025 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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Volume Title
Proceedings of the 2025 4th International Conference on Public Service, Economic Management and Sustainable Development (PESD 2025)
Series
Advances in Economics, Business and Management Research
Publication Date
22 December 2025
ISBN
978-94-6463-916-2
ISSN
2352-5428
DOI
10.2991/978-94-6463-916-2_18How to use a DOI?
Copyright
© 2025 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Cite this article

risenwbib
TY  - CONF
AU  - Xinyi Zhou
PY  - 2025
DA  - 2025/12/22
TI  - Understanding Risk Premium: A Conceptual and Practical Exploration in Modern Financial Markets
BT  - Proceedings of the 2025 4th International Conference on Public Service, Economic Management and Sustainable Development (PESD 2025)
PB  - Atlantis Press
SP  - 148
EP  - 156
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-916-2_18
DO  - 10.2991/978-94-6463-916-2_18
ID  - Zhou2025
ER  -