Singer–terhaar model
A market's risk premium estimated as a blend of two extremes, full integration (priced off its correlation with the global market) and full segmentation (priced off its own volatility), plus any illiquidity premium.
Where you will meet it
Singer–terhaar model appears in 3 learning outcomes on the CFA syllabus. A few of them:
- Set out the methods for estimating expected returns on fixed income
“Equilibrium models such as Singer–Terhaar derive premiums from risk and the global market price of risk.”
- Set out the methods used to form expected returns for equity markets
“Equilibrium approaches such as Singer–Terhaar compute a risk premium as volatility × correlation with the global market × the market Sharpe ratio, blended with a segmented version by degree of integration.”
- Explain the risks particular to holding emerging market equities
“In expected return models, lower integration with global markets argues for a higher risk premium, often estimated by blending integrated and segmented Singer–Terhaar premiums.”
See also
Correlation · Illiquidity premium
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