EQUITY PREMIUM, INFLATION AND MARKET
Date
2011-04-15
Authors
Jarvis, Matthew John Kuys
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Abstract
This report investigated the linkages between three important components of the financial
market in South Africa, namely equity risk premium, inflation and market volatility. While
research has revealed strong relationships between these factors in other countries, little has
been investigated in the local environment.
Within the data, two key structural breaks in the equity premium were identified. When the
data within these breaks was analysed, relationships between the three variables were found.
Within the three periods defined, a mean equity premium of 7.87%, 10.43% and 0.1%
respectively, was measured.
Using well-known relationship-measuring statistical and regression analysis tools, the data
were tested for possible relationships. Results showed that the relationships were not linear
and as a result correlation and regression were of little use. However, qualitative and
graphical analysis revealed that the equity premium moved in line with inflation, and market
volatility was delayed by approximately one year
Description
MBA - WBS
Keywords
Equity risk premium, Inflation, Market volatility