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The Effect of Exchange Rate and Interest Rate Volatilities on Stock Prices: Further Empirical Evidence from Ghana

Author

Listed:
  • Grace Ofori-Abebrese

    (Department of Economics, Kwame Nkrumah University of Science and Technology)

  • Samuel Tawiah Baidoo

    (Department of Economics, Kwame Nkrumah University of Science and Technology)

  • Peter Yaw Osei

    (Republic Bank Investments, Accra-Ghana)

Abstract

Studies have proven that volatilities in the rates of exchange and interest influence the performance of institutions and the values of their shares. This study investigates empirically the effect of exchange rate and interest rate volatilities on stock prices of financial institutions listed on the Ghana Stock Exchange using monthly data spanning the period January 2000 to October 2016. The generalized auto regressive conditionality heteroskedastic (GARCH) model is employed for the analysis. The results show that exchange rate volatility exerts positive effect on stock prices whereas interest rate volatility impacts on stock prices negatively. These results imply that the trade-off between risk and return can be predicted so industry players and stakeholders can manage risk to ensure a vibrant financial market. It is also suggested that there is the need for stakeholders and policy makers to ensure that these variables are stable or the volatilities are minimized in the economy. This will go a long way to enhance the performance of the stock market activities in the country.

Suggested Citation

  • 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.
    • Handle: RePEc:ana:elitjr:v:1:y:2019:i:2:p:117-132
    DOI: 10.22440/elit.1.2.3
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rate; stock prices; volatility; financial markets; GARCH model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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