The effects of macroeconomic factors on stock price movement in Ghana
Date
2016-04
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Abstract
The purpose of this study is to identify the effects that macroeconomic factors have
on stock price movement in Ghana, using the Arbitrage Pricing Theory(APT) as a
framework. Ordinary Least Square Regression (OLS) was employed for the study
since it provides an ideal structure for the APT. The macroeconomic variables
considered were inflation rate, treasury bill rate, cocoa price, crude oil prices, gold
prices, Balance of Payment account (BOP), Gross Domestic Product(GDP) and
exchange rate between the periods of 2006 and 2014.The data was obtained from the
Bank of Ghana, the Ghana Stock Exchange and the Ghana Statistical Service. The
Ghana Stock Exchange All Share Index(GSE-ASI) was used as a proxy for stock
price movement in Ghana. After discovering a multicolinearity problem through the
Global Validation for Linear Model Assumptions test, a backward stepwise regression
was run to eliminate some of the variables (BOP, treasury bill rate, oil and gold
prices) as a way of solving the multicolinearity problem. Results from the OLS
regression analysis revealed that inflation rate, exchange rate and GDP possess
statistically significant explanatory power over the GSE-ASI. Although cocoa prices
had a positive relationship with the GSE-ASI, it was statistically insignificant in
explaining stock price movement. With regards to the findings, the government
should take drastic steps to reduce the depreciation of the cedi, as exchange rate
significantly determines stock price movement in Ghana. Investors should buy more
local stocks at the back of an improvement in inflation rate, exchange rate and GDP in
Ghana.
Description
Thesis submitted to the Department of Business Administration, Ashesi University College, in partial fulfillment of Bachelor of Science degree in Business Administration, April 2016
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Keywords
Ghana, macroeconomic factors, stock prices, investment