The impact of interest rate on the Ghana stock exchange.

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May, 2016
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The study investigated the effect of interest rate on stock market returns in Ghana. Given that the Treasury bill rate is risk free, this might not truly reflect how the other rates which usually include some degree of risk affects the return on stock in Ghana. The study established the presence of a long run relationship between stock market returns and interest rate using the Johansen and Juselius (1990) test of co-integration and VECM . In the long run, Treasury bill rates and interest rates individually had a negative effect on stock market returns. The individual effect of Treasury bill rates was however more intense than that of lending interest rates. Broad money supply, exchange rate and economic growth were found to have a positive and significant effect on stock returns while inflation had a negative effect on stock returns in the long run. The study therefore recommends that prudent fiscal consolidation measures aimed at reducing government budget deficits should be implemented as this is the main factor that contributes to their desire to borrow heavily from the domestic markets and hence the high rates on the treasury bill.
A dissertation submitted to The Department of Economics, Kwame Nkrumah University of Science and Technology in partial fulfillment for the award of a Master of Science Degree (MSc) in Economics,