Macroeconomic uncertainty and conditional stock-price volatility in frontier African markets: Evidence from Ghana

Abstract

Purpose – The purpose of this paper is to analyse the impact of macroeconomic uncertainty on stock-price volatility in Ghana. Design/methodology/approach – The method of analysis is in two stages. The first stage estimates univariate volatility models for each macroeconomic variable; namely consumer price index (proxy for inflation), exchange rate, money supply, interest rates, oil price, gold price, and cocoa price using the exponential generalized autoregressive conditional heteroskedasticity (EGARCH) model. In the second stage volatility effect of macroeconomic variables on stock prices is estimated using the most recent squared residuals from the mean-conditional variance of macroeconomic variables as exogenous variables in the conditional variance equation of the stock price. Findings – The results show that higher volatility in cocoa prices and interest rates increases volatility of the stock prices, whilst higher volatility in gold prices, oil prices, and money supply reduces volatility of stock prices. Originality/value – This paper departs from previous studies on African markets, by incorporating time-varying volatility characteristics of stock returns and further examining the effect of conditional volatility of macroeconomic variables on the volatility of stock. It also incorporates the effect of external macroeconomic uncertainties from oil and commodity price shocks. © 2009, © Emerald Group Publishing Limited.