A Review of Literature on the Effect of Inflation Volatility on Equity Risk Premium

Abstract

The relationship between various macroeconomic variables and stock returns has been documented since 1986 in developing African countries. However, with the increased phenomenon of international financial integration, the subject matter of compensation of international investors in developing countries; as captured by the equity risk premium has come to light. This literature review aims to review research studies that have investigated the relationship between inflation volatility and equity risk premium. Literature revealed that, while there is no general consensus on the direction or magnitude of the relationship between inflation volatility and equity risk premium, it still remains an important subject matter that should be studied further..

Keywords: Risk, Equity Risk Premium, Inflation Volatility,