Stock Market Reaction To The Recent Banking Reforms: Evidence From The Ghana Stock Exchange.
No Thumbnail Available
Date
2020-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
University Of Ghana
Abstract
This study examines the reaction of the Ghana Stock Exchange to the recent banking reforms and tests the semi-strong form efficiency of the GSE. Daily stock returns of listed companies and market returns consisting of both GSE composite index and GSE financial stock index are analyzed for all listed companies and listed financial institutions respectively. It employs event study methodology and cross-sectional regression. Market model is used in this study. Evidence is found of a reaction in the GSE to the banking reforms. On the event date, which is the announcement of the increase in the minimum capital requirement of banks, positive returns were made by investors. The reason for this reaction could be as a result of high anticipation among the investors that the recapitalization exercise would boost the financial system. This resulted in the demand of shares to rise during this period ensuing in more investors buying shares than selling thereby causing stock prices to rise. Investors who held shares during this period earned positive returns on their investment. The positive impact on share prices could also be attributed to banks issuing shares to raise the extra capital and investors buying those shares thereby giving rise to an increase in the demand of shares triggering share price to increase. Additionally, in the cross-sectional regression, the Market model shows a positive relationship between Cumulative Abnormal Returns and Abnormal Returns for both GSE CI and GSE FSI.
The upward movement of Cumulative Average Abnormal Returns represents investors earning positive returns. The prevalence of significant abnormal returns infers that some investors were able to spot mispriced shares springing from inadequate circulation of information in the stock market and earn abnormal returns by taking either a short position or long position. This should not have been the case in an efficient market which would have limited the occurrence of some investors gaining. In addition to that, some investors made significant abnormal returns even days
after the event date. Generally, from the results, the Ghana Stock Exchange is found to be inefficient in the semi-strong form.
The study recommends that regulators should be cognizant of the impact of their policies on the stock market in order to improve liquidity in the Ghanaian stock market.
Keywords: Banking reforms, Bank recapitalization, Semi-strong form market efficiency, Event study, Market model, Cross-sectional regression
Description
MPhil. Finance
Keywords
Banking reforms, Bank recapitalization, Semi-strong form market efficiency, Event study, Market model, Cross-sectional regression