Time series analysis of interest rates volatility and stock returns in Ghana

Ahiadorme, Johnson Worlanyo and Sonyo, Emmanuel and Ahiase, Godwin (2019): Time series analysis of interest rates volatility and stock returns in Ghana.

Abstract

The study utilized time series analysis models and employed the Johansen's cointegration procedure and the vector error correction model to examine the short run and long run dynamics of the relationship between interest rates and stock market returns. The results of this study show that contrary to popular evidence from extant research, interest rate changes positively and significantly affect stock market returns in the long run and the deviation from the long run equilibrium is corrected each period following a shock to the stock market in the short run. The positive linkages between interest rate changes and stock market outturns may be explained by the relative strength of banking stocks on the Ghana Stock Exchange. The analysis shows that as the long run equilibrium is approached, the deviations in the short term decrease significantly.

• Item Type: MPRA Paper
• Language: English
• Keywords: Interest rate, stock returns, cointegration, time series analysis, VECM
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

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