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Macroeconomic Variables and Stock Price Volatility in Ghana

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  • Prempeh, Kwadwo Boateng

Abstract

This study empirically examined the impact of some macroeconomic variables on stock price volatility in the Ghana Stock Exchange (GSE) using annual time series data over the period of 1990-2014. Secondary data on the performance of the stock exchange: GSE-All Shares was obtained from the Ghana stock exchange website whiles that of macroeconomic variables was obtained from the Bank of Ghana website. The macroeconomic variables used in this study are inflation rate, real gross domestic product growth rate and interest rate. The Granger causality test was employed to determine the causal link between stock prices and macroeconomic variables in Ghana. The results of the Granger causality test shows that at 10% significance level, real domestic product rate granger causes stock price but stock price does not granger cause real domestic product rate. There is, therefore, a unidirectional causality running from Real Gross Domestic Product growth rate to stock price The other variables: inflation rate and interest rate do not granger cause stock prices. This shows that a shock in real domestic product growth rate affects stock price volatility in Ghana. The Ghana Stock Exchange should track likely factors that are responsible for stock price volatility. Also, to stabilize stock price movement, real gross domestic product growth rate should be one of the main factors to be addressed apart from other internal factors that affect liquidity such as stock market liquidity and volume of shares. Laws and regulations governing the operations of the stock exchange should be strengthened to protect the interest of buyers and sellers on the stock market. This will increase the confidence of investors as well as boost domestic investor participation and enlarge stock ownership base in the economy.

Suggested Citation

  • Prempeh, Kwadwo Boateng, 2016. "Macroeconomic Variables and Stock Price Volatility in Ghana," MPRA Paper 70545, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:70545
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    References listed on IDEAS

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    Cited by:

    1. Joseph Antwi Baafi & Eric Effah Sarkodie & John Kwame Duodu & Seyram Pearl Kumah, 2024. "Why Should We Pay Attention to Working Capital Management? A Case of Ghana," Businesses, MDPI, vol. 4(1), pages 1-18, March.
    2. Sanya Ogunsakin & Isaac Tope Awe, 2020. "Macroeconomic Determinants of Stock Market Performance in Nigeria," Business and Economic Research, Macrothink Institute, vol. 10(4), pages 139-158, December.
    3. Joseph Emmanuel Tetteh & Anthony Amoah & Deodat Emilson Adenutsi, 2019. "Drivers of Stock Market Returns in Sub-Saharan Africa: Evidence from Selected Countries," Asian Development Policy Review, Asian Economic and Social Society, vol. 7(3), pages 191-208, September.
    4. Onur Şeyranlıoğlu & Çağlar Sözen & Ferhat İspiroğlu, 2024. "Interaction Between Stock Exchange And Interest Rate in Turkey: A Hidden Cointegration and Asymmetric Causality Analysis," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul Journal of Economics-Istanbul Iktisat Dergisi, vol. 0(40), pages 22-34, June.

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    More about this item

    Keywords

    GSE-All Share Index; inflation; interest rate; Real Gross Domestic Product growth rate; Ghana;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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