Interest rate, liquidity and stock market performance in Ghana

  • Authors

    • Micheal Kofi Boachie Department of Economics, Annamalai University, India
    • Isaac Osei Mensah ASN Investment Limited, Kumasi, Ghana
    • Albert Opoku Frimpong Department of Economics, Kwame Nkrumah University of Science and Technology, Kumasi
    • Martin Ruzima Department of Economics, Annamalai University
    2016-04-18
    https://doi.org/10.14419/ijaes.v4i1.5990
  • Liquidity, Stock Market Index, Exchange Rate, Inflation, Interest Rate, Ghana
  • Abstract

    In this study, we examined the effect of interest rate and liquidity growth on stock market performance in Ghana using monthly data from the Ghana Stock Exchange and Bank of Ghana for the period 2010:12 to 2013:11. After employing robust linear regression (M-Estimation), there is a compelling evidence that performance of the Ghanaian stock market is highly influenced by liquidity growth, exchange rate and inflation; and that interest rate effect is insignificant though positive on the stock market index for the period under study.

  • References

    1. [1] Adjasi, C., Harvey, S. K., and Agyapong, D. (2008), Effect of Exchange Rate Volatility on the Ghana Stock Exchange, African Journal of Accounting, Economics, Finance and Banking Research, 3(3).

      [2] Aduda, J., Masila, J. M., and Onsongo, E. N (2012), The Determinants of Stock Market Development: The Case for the Nairobi Stock Exchange, International Journal of Humanities and Social Science, 2(9).

      [3] Anokye, M. A., and Tweneboah, G. (2008), Macroeconomic Factors and Stock Market Movement: Evidence from Ghana. MPRA Paper No.11256, Munich, Munich Personal RePEc Archives.

      [4] Chancharat, S., Valadkhani, A., and Harvie, C. (2007), the Influence of International Stock Markets and Macroeconomic Variables on the Thai Stock Market. Faculty of Commerce - Papers (Archive), University of Wollongong.

      [5] Chen, N. F., Roll, R. and Ross, S. A. (1986), Economic forces and the stock market, J. Bus., 59(3): 383-403. http://dx.doi.org/10.1086/296344.

      [6] Engberg, H. L. (1975), Indigenization of the Business Sector through the Organized Capital Market: The Lagos Stock Exchange, Journal of Mgt Studies, 7(4).

      [7] Gan, C., Lee, M., Yong, H. and Zhang, J. (2006), Macroeconomic variables and stock market interactions: New Zealand evidence. Int. Mgt. Financ. Innov., 3(4): 89-101.

      [8] Gujarati, D. N. (2004), Basic econometrics (4th ed.) Tata McGraw-Hill, New Delhi.

      [9] Hamao, Y. (1988). An Empirical Investigation of the Arbitrage Pricing Theory. Japan and the World Economy, 1, 45-61. http://dx.doi.org/10.1016/0922-1425(88)90005-9.

      [10] Huber, P. J. (1964) Robust Estimation of a Location Parameter, Annals of Mathematical Statistics 35:73-101. http://dx.doi.org/10.1214/aoms/1177703732.

      [11] Khan, K. N. (2004) Inflation and Stock Market Performance: A Case Study for Pakistan, Savings and Development, 28(1): 87-101.

      [12] Kuwornu, K. M., and Owusu-Nantwi, V (2011) Macroeconomic Variables and Stock Market Returns: Full Information Maximum Likelihood Estimation, Research Journal of Finance and Accounting, 2(4).

      [13] Kyereboah-Coleman, A. and Agyire-Tettey, K. F. (2008) Impact of macroeconomic indicators on stock market performance: The case of the Ghana stock exchange. Journal of Risk Finance, 5(2).

      [14] Maysami, R. C., and Koh, T. S. (2000) A Vector Error Correction Model of the Singapore Stock Market, International Review of Economics and Finance, 9:79–96. http://dx.doi.org/10.1016/S1059-0560(99)00042-8.

      [15] Maysami, R. C., Howe, L. C. and Hamaz, M. A. (2004), Relationship between Macroeconomic Variables and Stock Market Indices: Cointegration Evidence from Stock Exchange of Singapore’s All-S Sector Indices, Journal Penguruson, 24: 47-77.

      [16] Mckinnon, R. (1973). Money and Capital in Economic Development. Washington D.C., Brookings Institution

      [17] Mishkin, F. S. (2004) The Economics of Money, Banking and Financial Markets. 7th Ed., 2004, Addison-Wesley Series in Economics, ISBN 0-321-12235-6.

      [18] Mookerjee, R. and Yu, Q. (1997), Macroeconomic Variables and Stock Prices in small Open Economy: The case of Singapore, Pacific-Basin Finance Journal, 5: 377-788. http://dx.doi.org/10.1016/S0927-538X(96)00029-7.

      [19] Mukherjee, T. K. and Naka, A. (1995), Dynamic relations between Macroeconomic Variables and the Japanese Stock Market: An application of a Vector Error Correction Model, The Journal of Financial Research, 2:223-237. http://dx.doi.org/10.1111/j.1475-6803.1995.tb00563.x.

      [20] Mukhopadhyay, D. and Sakar, N. (2003), Stock returns and macroeconomic fundamentals in model specification framework: Evidence from Indian stock market. Discussion Paper, January, 1-28, Indian Statistical Institute, Economic Research Unit, ERU 2003-2005

      [21] Ologunde, A. O., Elumilade, D. O. and Asaolu, T. O. (2006), Stock Market Capitalization and Interest Rate in Nigeria: A Time Series Analysis. International Research Journal of Finance and Economics, 4:154-166.

      [22] Osamwonyi, I. O., and Evbayiro-Osagie, E. I. (2012), The Relationship between Macroeconomic Variables and Stock Market Index in Nigeria, Journal of Economics, 3(1):55-63.

      [23] Osei, K.A. (2006), Macroeconomic factors and the Ghana stock market, African Finance Journal, 8:26-38.

      [24] Osei-Fosu, A. K. and Osei-Fosu, A. K. (2013), Empirical investigation of the nexus between stock prices and exchange rates in Ghana, Ghanaian Journal of Economics, 1.

      [25] Oyinlola, M. A., Adeniyi, O., and Omisakin, O. (2012), the Dynamics of Stock Prices and Exchange Rates: Evidence from Nigeria. Journal of Monetary and Economic Integration, 12(1).

      [26] Pearce, D., and Roley, V. V. (1983), the Reaction of the Stock Prices to Unanticipated Changes in Money: a Note. The Journal of Finance, 38:1323-1333. http://dx.doi.org/10.1111/j.1540-6261.1983.tb02303.x.

      [27] Ratanapakorn, O. and Sharma, S. C. (2007), Dynamics analysis between the US Stock Return and the Macroeconomics Variables, Applied Financial Economics, 17 (4): 369-377. http://dx.doi.org/10.1080/09603100600638944.

      [28] Robert, D. G. (2008), Effect of macroeconomic variables on stock market returns for four emerging economies: Brazil, Russia, India and China. Int. Bus. Econ. Res. J., 7(3).

      [29] Ross, S. A. (1976), the arbitrage theory of capital assets. J. Econ. Theory, December, 13(3): 341-360. http://dx.doi.org/10.1016/0022-0531(76)90046-6.

      [30] Rousseeuw, R. J., and Leroy, A. M. (1987), Robust Regression and Outlier Detection, New York: Wiley. http://dx.doi.org/10.1002/0471725382.

      [31] Serletis, A. (1993), Money and Stock Prices in the United States, Applied Financial Economics, 3:51-54. http://dx.doi.org/10.1080/758527816.

      [32] Shaw, E. (1973) Financial Deepening in Economic Development, New York, Oxford University Press.

      [33] Singh, A. (1997) Financial Liberalization, Stock Markets and Economic Development, The Economic Journal, 107: 77-182 http://dx.doi.org/10.1111/j.1468-0297.1997.tb00042.x.

      [34] Wongbangpo, P., and Sharma, S. C. (2002), Stock Market and Macroeconomic Fundamental Dynamic Interactions: ASEAN–5 Countries. Journal of Asian Economics, 13: 27–51: http://dx.doi.org/10.1016/S1049-0078(01)00111-7.

      [35] Worthington, A. C., and Higgs, H. (2006), Evaluating Financial Development in Emerging Capital Markets with Efficiency Benchmarks, Faculty of Commerce Papers, University of Wollongong: available at : http://ro.uow.ed.au/commpapers/115.

  • Downloads

  • How to Cite

    Boachie, M. K., Osei Mensah, I., Opoku Frimpong, A., & Ruzima, M. (2016). Interest rate, liquidity and stock market performance in Ghana. International Journal of Accounting and Economics Studies, 4(1), 46-51. https://doi.org/10.14419/ijaes.v4i1.5990

    Received date: 2016-03-10

    Accepted date: 2016-04-03

    Published date: 2016-04-18