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Macroeconomic Factors and Stock Market Movement: Evidence from Ghana

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  • Adam, Anokye M.
  • Tweneboah, George

Abstract

This study examines the role of macroeconomic variables on stock prices movement in Ghana. We use the Databank stock index to represent Ghana stock market and (a) inward foreign direct investments, (b) the treasury bill rate (as a measure of interest rates), (c) the consumer price index (as a measure of inflation), and (d) the exchange rate as macroeconomic variables. We analyze both long-run and short-run dynamic relationships between the stock market index and the economic variable with quarterly data for the above variables from 1991.1 to 2006.4 using Johansen's multivariate cointegration test and innovation accounting techniques. We established that there is cointegration between macroeconomic variables identified and Stock prices in Ghana indicating long run relationship. Results of Impulse Response Function (IRF) and Forecast Error Variance Decomposition (FEVD) indicate that interest rate and Foreign Direct Investment (FDI) are the key determinants of the share price movements in Ghana.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11256.

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Date of creation: Oct 2008
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Handle: RePEc:pra:mprapa:11256

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Keywords: Cointegration; Innovation Accounting; Foreign Direct Investment (FDI);

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References

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  1. Robert H. DeFina, 1991. "Does inflation depress the stock market?," Business Review, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-12.
  2. Cheung, Yin-Wong & Ng, Lilian K., 1998. "International evidence on the stock market and aggregate economic activity," Journal of Empirical Finance, Elsevier, Elsevier, vol. 5(3), pages 281-296, September.
  3. Ali Anari & James Kolari, 2001. "Stock Prices And Inflation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 587-602, December.
  4. Paul Alagidede, 2009. "Are African Stock Markets Integrated with the Rest of the World?," The African Finance Journal, Africagrowth Institute, Africagrowth Institute, vol. 11(1), pages 37-53.
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Cited by:
  1. Haruna Issahaku & Yazidu Uztarz & Paul Bata Domanban, 2013. "Macroeconomic Variables and Stock Market Returns in Ghana: Any Causal Link?," Asian Economic and Financial Review, Asian Economic and Social Society, Asian Economic and Social Society, vol. 3(8), pages 1044-1062, August.
  2. Kwame Mireku & Kwaku Sarkodie & Kwasi Poku, 2013. "Effect of Macroeconomic Factors on Stock Prices in Ghana: A Vector Error Correction Model Approach," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(2), pages 32-43, April.

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