THE DETERMINANTS OF STOCK MARKET VOLATILITIES IN GHANA

Abstract

The study aims at examining macroeconomic relationship between economic growth and stock market performance. Annual time series data covering the period 1990-2008 were extracted and interpolated into quarterly data. The ADF test statistics are used to test for stationarity in the variables. Johansen Cointegration and the error correction model techniques are employed to ascertain both short-run and long-run relationships between economic growth and stock market performance.The main findings of the study reveal that stock market performance exerts dominant effect on economic growth. Interesting also in the results is that, it takes time for this to take effect due to the presence of a lags values in the variables. The main determinants of economic growth in Ghana are identified to be lagged GDP, foreign direct investment and exchange rate. However, Inflation rate and interest rate are found to exert insignificant influence on economic growth. The main contribution of this study is its emphasis on macroeconomic relationship between economic growth and stock market performance in Ghana.