Statistical Assessment of the Relationship between Stock Prices and Economic Variables: A Case Study for the GSE

Abstract

There are several literature on the study of the relationship between macroeconomic variables and stock prices. These studies have focused largely on the developed capital market and carried out in the early 1970s. From literature reviewed,there is no study that have modelled the relationship between stock price and, both macroeconomic and micoeconomic variables in the order to explain their combined effect on stock market returns using Autoregressive Distributed Lag (ARDL) model at the Ghana Stock Exchang. The speed of adjustment also known as the error correction term (EC) of the Conditional Error Correction Model (CECM), was found to be (-0.897198) at 5% alpha level. A negative error correction term indicates convergence among the macroeconomic and microeconomic variables in the long run. The study reveal that only Producer Price Index has a short-run relationship with Ghana Stock Exchange all-share price index in the short-run. It was discovered that Ghana Stock Exchange allshare price index has no causal relationship with the respective macroeconomic and microeconomic variables. From the research findings, Government can therefore use these selected economic variables to forecast cast stock price variations to determine when and how to tap into the stock market industry to raise funds for development.