The effects of macroeconomic factors on stock price movement in Ghana

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.
Thesis submitted to the Department of Business Administration, Ashesi University College, in partial fulfillment of Bachelor of Science degree in Business Administration, April 2016
Ghana, macroeconomic factors, stock prices, investment