[2] The market price of stocks fluctuates all the time, depending on supply and demand.
The measure of risk used in the equity markets is typically the standard deviation of a security's price over a number of periods.
The standard deviation will delineate the normal fluctuations one can expect in that particular security above and below the mean, or average.
However, since most investors would not consider fluctuations above the average return as "risk," some economists prefer other means of measuring it.
"[citation needed] equity risk premium (ERP) is the difference between the return on a market portfolio or a stock with average market risk and the risk-free rate of return.
[4] This excess compensates investors for taking on the relatively higher risk of the equity market.
The size of the premium can vary as the risk in the stock, or just the related whole market in general, increases.
These are considered risk free because there is a low chance that the government will default on its loans.
[5] Some analysts use "implied equity risk premium," a forward-looking view of ERP.