Do macroeconomic variables play any role in the stock market movement in Ghana?
This study examines the impact of macroeconomic variables on stock prices. We use the Databank stock index to represent the 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), (d)Average crude oil prices , and (e) the exchange rate as macroeconomic variables. We analyse quarterly data for the above variables from 1991.1 to 2007.4. employing cointegration test, vector error correction models (VECM). These tests examine both long-run and short-run dynamic relationships between the stock market index and the economic variables. The paper established that there is cointegration between macroeconomic variable and Stock prices in Ghana indicating long run relationship. The VECM analyses shows that the lagged values of interest rate and inflation has a significant influence on the stock market. The inward foreign direct investments, the oil prices , and the exchange rate demonstrate weak influence on price changes. In terms of policy implication, the establishment of lead lag relation indicate that the DSI is not informational efficient with respect to interest rate, inflation inward FDI, Exchange rate and world Oil prices.
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