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Macroeconomic Factors and Stock Market Movement: Evidence from Ghana

Author

Listed:
  • 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.

Suggested Citation

  • Adam, Anokye M. & Tweneboah, George, 2008. "Macroeconomic Factors and Stock Market Movement: Evidence from Ghana," MPRA Paper 11256, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:11256
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    References listed on IDEAS

    as
    1. Anari, Ali & Kolari, James, 2001. "Stock Prices and Inflation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 587-602, Winter.
    2. Paul Alagidede, 2009. "Are African Stock Markets Integrated with the Rest of the World?," The African Finance Journal, Africagrowth Institute, vol. 11(1), pages 37-53.
    3. Cheung, Yin-Wong & Ng, Lilian K., 1998. "International evidence on the stock market and aggregate economic activity," Journal of Empirical Finance, Elsevier, vol. 5(3), pages 281-296, September.
    4. Robert H. DeFina, 1991. "Does inflation depress the stock market?," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-12.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. repec:hur:ijaraf:v:7:y:2017:i:4:p:95-102 is not listed on IDEAS
    2. Pooja Joshi & A K Giri, 2015. "Dynamic Relations between Macroeconomic Variables and Indian Stock Price: An Application of ARDL Bounds Testing Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(10), pages 1119-1133, October.
    3. repec:vul:omefvu:v:8:y:2017:i:1:id:217 is not listed on IDEAS
    4. Assefa, Tibebe A. & Mollick, André Varella, 2014. "African stock market returns and liquidity premia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 325-342.
    5. repec:hur:ijarbs:v:7:y:2017:i:6:p:1004-1011 is not listed on IDEAS
    6. Rana Ejaz Ali Khan & Rafaquat Ali, 2015. "Causality Analysis of Volatility in Exchange Rate and Stock Market Prices: A Case Study of Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(5), pages 805-815, May.
    7. 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, Finance and Management Sciences, vol. 3(2), pages 32-43, April.
    8. Emeka Nkoro & Aham Kelvin Uko, 2013. "A Generalized Autoregressive Conditional Heteroskedasticity Model of the Impact of Macroeconomic Factors on Stock Returns: Empirical Evidence from the Nigerian Stock Market," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 4(4), pages 38-51, October.
    9. repec:blg:journl:v:12:y:2017:i:1:p:61-78 is not listed on IDEAS
    10. Pooja Joshi & A. K. Giri, 2015. "Cointegration and Causality between Macroeconomic variables and Stock Prices: Empirical Analysis from Indian Economy," Business and Economic Research, Macrothink Institute, vol. 5(2), pages 327-345, December.
    11. repec:ebl:ecbull:eb-16-00712 is not listed on IDEAS
    12. 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, vol. 3(8), pages 1044-1062, August.

    More about this item

    Keywords

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

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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