Assessing the Impact of Monetary Policy on Stock Returns at Ghana Stock Exchange

Abstract

The paper examines the impact of monetary policy on stock returns at the Ghana Stock Exchange. Due to the fact that, central bank of Ghana is embarking on expansionary monetary policies, yet the Ghana Stock Exchange continued to record a bearish performance. We accessed data from World Bank’s World Development Indicators, the United States’ (US) International Energy Statistics, and the Central Intelligence Agency’s (CIA) Factbooks from 1990 to 2019. An autoregressive distributed lag (ARDL) structure is utilized to decide the long-and short-run effect of the chose framework stock and quality lists on Ghana's monetary development. Findings reveal a unidirectional movement between stock returns and inflation, from 1990 to 1992; stock returns were negative when inflation decreased sharply till 1993.From 2000 the pattern of stock returns and inflation was similar until there was a sharp decline in 2005. Whilst money supply tends to be steady in the long-run, stock return looks very volatile in the same period from 1990 to 2019 in a similar pattern.The study recommends that potential investors should consider the movements of these monetary policy variables when deciding on investing in the stock market. Also, when the central bank is considering its monetary policy direction, they are advised to take a critical consideration into the movement of the stock market since any decision will have a bearing on the wealth of stakeholders.

Keywords: Stock market, ARDL, Macroeconomic Variable, Infrastructure Stock, Ghana.

DOI: 10.7176/JESD/15-2-05

Publication date: January 31^st 2024