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A Study of the Effect of Inflation and Exchange Rate on Stock Market Returns in Ghana

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  • Charles Kwofie
  • Richard Kwame Ansah

Abstract

The study examined the effect of exchange rate and inflation on stock market returns in Ghana using monthly inflation and exchange rate data obtained from the Bank of Ghana and monthly market returns computed from the GSE all-share index from January 2000 to December 2013. The autoregressive distributed lag (ARDL) cointegration technique and the error correction parametization of the ARDL model were used for examining this effect. The ARDL and its corresponding error correction model were used in establishing the long- and short-run relationship between the Ghana Stock Exchange (GSE) market returns, inflation, and exchange rate. The result of the study showed that there exists a significant long-run relationship between GSE market returns and inflation. However, no significant short-run relationship between them existed. The result also showed a significant long- and short-run relationship between GSE market returns and exchange rate. The variables were tested for long memory and it was observed that such property did exist in these variables, making it a desirable feature of which investors can take advantage of. This is due to the establishment of long-run effect of inflation and exchange rate on stock market returns.

Suggested Citation

  • Charles Kwofie & Richard Kwame Ansah, 2018. "A Study of the Effect of Inflation and Exchange Rate on Stock Market Returns in Ghana," International Journal of Mathematics and Mathematical Sciences, Hindawi, vol. 2018, pages 1-8, March.
    • Handle: RePEc:hin:jijmms:7016792
    DOI: 10.1155/2018/7016792
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    Cited by:

    1. Grace Ofori-Abebrese & Samuel Tawiah Baidoo & Peter Yaw Osei, 2019. "The Effect of Exchange Rate and Interest Rate Volatilities on Stock Prices: Further Empirical Evidence from Ghana," Economics Literature, WERI-World Economic Research Institute, vol. 1(2), pages 117-132, December.
    2. Faiza Omer Elmahgop & Omer Ahmed Sayed, 2020. "The Effect of Inflation Rates on Stock Market Returns in Sudan: The Linear Autoregressive Distributed Lag Model," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(7), pages 808-815, July.
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    5. I. E. Okorie & A. C. Akpanta & J. Ohakwe & D. C. Chikezie & C. U. Onyemachi & M. C. Ugwu, 2021. "Modeling the Relationships Across Nigeria Inflation, Exchange Rate, and Stock Market Returns and Further Analysis," Annals of Data Science, Springer, vol. 8(2), pages 295-329, June.
    6. Armida Amado & Looi Mun Choon, 2020. "Impact of Changes in Exchange Rate on Stock Market: An Empirical Evidence from Indonesia," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 7(1), pages 24-31.
    7. Chunyi Lu & Zhuoqi Teng & Yu Gao & Renhong Wu & Md. Alamgir Hossain & Yuantao Fang, 2022. "Analysis of Early Warning of RMB Exchange Rate Fluctuation and Value at Risk Measurement Based on Deep Learning," Computational Economics, Springer;Society for Computational Economics, vol. 59(4), pages 1501-1524, April.
    8. Omer Ahmed Sayed Mohamed & Faiza Omer Mohammed Elmahgop, 2020. "Is the Effect of the Exchange Rate on Stock Prices Symmetric or Asymmetric? Evidence from Sudan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(2), pages 209-215.
    9. Sepehrdoust, Hamid & Ahmadvand, Shokoufeh & Mirzaei, Nesa, 2022. "Impact of information, communication technology and housing industry on financial market development," Technology in Society, Elsevier, vol. 69(C).

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