Average market risk premium in Canada 2011-2024

The average market risk premium in Canada was 5.2 percent in 2024. This means investors demanded an extra 5.2 Canadian dollars on a 100 Canadian dollar investment. This extra cost should compensate for the risk of an investment based in Canada. 

What causes risk?

As far as country-specific factors are concerned, macroeconomic trends can cause risk. For example, the inflation rate in relation to other countries can change the relative value of an investment. Lower inflation in Canada could weaken the Canadian dollar, reducing the value of Canadian assets in terms of another currency, such as the euro or U.S. dollar.

The Canadian context

As a country, Canada has a fairly high national debt. Some economists point to this as an increased default risk, since debt servicing can become costly. However, most investors agree that Canada, as an advanced economy, is creditworthy and not at risk of defaulting. A better measure is to look at Canada’s risk premium in the context of interest rates from other countries. These deposit rates can be used as a baseline for the market risk premium of other countries, though they do not include all the factors that have been used to calculate this statistic.