Macroeconomic Variables and Stock Price Volatility in Ghana

Prempeh, Kwadwo Boateng (2016): Macroeconomic Variables and Stock Price Volatility in Ghana.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: GSE-All Share Index, inflation, interest rate, Real Gross Domestic Product growth rate, Ghana
• Subjects: G - Financial Economics > G1 - General Financial Markets > G10 - General

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