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Modeling stock price dynamics on the Ghana Stock Exchange: A Geometric Brownian Motion approach

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  • Dennis Lartey Quayesam
  • Anani Lotsi
  • Felix Okoe Mettle

Abstract

Modeling financial data often relies on assumptions that may prove insufficient or unrealistic in practice. The Geometric Brownian Motion (GBM) model is frequently employed to represent stock price processes. This study investigates whether the behavior of weekly and monthly returns of selected equities listed on the Ghana Stock Exchange conforms to the GBM model. Parameters of the GBM model were estimated for five equities, and forecasts were generated for three months. Evaluation of estimation accuracy was conducted using mean square error (MSE). Results indicate that the expected prices from the modeled equities closely align with actual stock prices observed on the Exchange. Furthermore, while some deviations were observed, the actual prices consistently fell within the estimated confidence intervals.

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  • Dennis Lartey Quayesam & Anani Lotsi & Felix Okoe Mettle, 2024. "Modeling stock price dynamics on the Ghana Stock Exchange: A Geometric Brownian Motion approach," Papers 2403.13192, arXiv.org.
    • Handle: RePEc:arx:papers:2403.13192
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    References listed on IDEAS

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    1. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144.
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