Effect of Exchange Rate Volatility on the Ghana Stock Exchange

African Journal of Accounting, Economics, Finance and Banking Research, Vol. 3, No. 3, December 2008

20 Pages Posted: 14 Jan 2010

See all articles by Charles Adjasi

Charles Adjasi

affiliation not provided to SSRN

Simon K. Harvey

University of Ghana

Daniel Akwesi Agyapong

affiliation not provided to SSRN

Date Written: December 28, 2008

Abstract

The study looked at the relationship between Stock Markets and Foreign Exchange market, and determined whether movements in exchange rates have an effect on stock market in Ghana. The Exponential Generalised Autoregressive Conditional Heteroskedascity (EGARCH) model was used in establishing the relationship between exchange rate volatility and stock market volatility. It was found that there is negative relationship between exchange rate volatility and stock market returns - a depreciation in the local currency leads to an increase in stock market returns in the long run. Where as in the short run it reduces stock market returns. Additionally, there is volatility persistence in most of the macroeconomic variables; current period’s rate has an effect on forecast variance of future rate. It was also revealed that an increase (decrease) in trade deficit and expectation in future rise in trade deficit will decrease (increase) stock market volatility. In addition, the consumer price index has a strong relationship with stock market volatility. This means that an increase in consumer price will lead to a rise in stock market volatility. Finally, there is the presence of leverage effect and volatility shocks in stock returns on the Ghana Stock Exchange.

Keywords: volatility, leverage, exchange rate, returns, Ghana Stock Exchange

JEL Classification: N2, N27

Suggested Citation

Adjasi, Charles K. D. and Harvey, Simon K. and Agyapong, Daniel Akwesi, Effect of Exchange Rate Volatility on the Ghana Stock Exchange (December 28, 2008). African Journal of Accounting, Economics, Finance and Banking Research, Vol. 3, No. 3, December 2008 . Available at SSRN: https://ssrn.com/abstract=1534178

Charles K. D. Adjasi (Contact Author)

affiliation not provided to SSRN ( email )

Simon K. Harvey

University of Ghana

PO Box 25
Legon, Accra LG
Ghana

Daniel Akwesi Agyapong

affiliation not provided to SSRN

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