Comparative analysis of the performance of Equities (Stock) and Treasury Bills in Ghana
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Date
2011
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Abstract
One very important function of financial markets is helping to channel funds from surplus units to deficit units at appropriate prices. Despite the existence of an organized stock exchange in Ghana, many Ghanaians are so much impressed with the observable high interest rate in treasury bills that many believe treasury bills offer high returns than other securities. The study compared risk and returns characteristics of stock exchange traded shares and treasury bills in Ghana to find out which of the two instruments gives better rewards to investors. We made use of annualized returns of these instruments and applied statistical measures of average annual returns, standard deviations and co-efficient of variations for the analysis. Comparing investor A (GSE All-Share Investment) and investor B (Treasury Bills Investment) as sample study for the period of 1991 to 2005, it was revealed that GSE All-Shares Index has higher risk and higher return. This result confirms the general expectation of the relationship between rate of returns and the risk associated with investment – the higher the risk, the higher the return. The Study further revealed that the market performance of both treasury bills and GSE All-Share Index outperformed the rate at which prices were rising (average inflation rate) for the period 1991 – 2005. Additionally investors have been adequately rewarded for bearing risk as stock exchange traded shares for the period under study returned a positive average annual risk (market risk) premium of 11.81% over treasury bills.
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A Thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements for the degree of Commonwealth Executive Masters in Business Administration,