Dynamic Connectedness between Indicators of the Ghana Stock Exchange Returns and Macroeconomic Fundamentals
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Date
2022
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Risks
Abstract
The performance of the Ghana Stock Exchange (GSE) over the years has been susceptible to
both crises and country-specific factors reflected in its macroeconomic fundamentals. Accordingly,
the GSE composite index (GSECI) has experienced rapid fluctuations across time, coupled with a
declining market capitalisation from a reduction in the number of existing firms. The plunge in the
number of firms is partly linked to the banking sector clean-up in 2017, which induced the collapse and
consolidation of some financial institutions as well as weaknesses in other macroeconomic variables.
This ignites an investigation into whether the synergistic impact of listed firms that represent the
financial sector and the soundness of banking sector measures are dominant factors that could
drive or respond to shocks. Hence, the study investigates the lead-lag relationships and degree
of integration among two indicators of the GSEāGSECI and GSE financial index (GSEFI), seven
banking financial soundness indicators and eight interest rate measures. The wavelet approaches
(biwavelet and wavelet multiple) are utilised to address the research problem. The DCC-GARCH
connectedness approach is then employed as a robustness check. We found high interconnectedness
between the indicators of the GSE and banking sector financial soundness, relative to the interest
rates. Notwithstanding, the Treasury bill measures drive the GSE indicators in the short- and
medium-terms. In comparison with the two indicators of the GSE, significant changes are
dominant between the GSEFI and the two forms of selected macroeconomic variables. We advocate
that the comovements among the indicators of the GSE, banking sector financial soundness, and
interest rate measures are heterogeneous and adaptive, especially during crises, but more significant
comovements are germane to the GSEFI. The study provides further implications for policy, practice, and
and theory
Description
Research Article
Keywords
spillover, Ghana Stock Exchange composite index, interest rates