The effect of some macroeconomic variables on stock market price

Sena Juliet Enyindah Elvis Sarah Matilda 53 PAGES (10481 WORDS) Dissertation
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The purpose of this study was to examine the effect of some macroeconomic variables on stock 

market price in Ghana. The study employed yearly data spanning the period of January 1990 

to December 2016. Unit root test was performed using Augmented Dickey-Fuller Test (ADF) 

and Philips-Perron test (PP), Cointegration was also applied. The macroeconomic variables 

considered were Gross Domestic Product (GDP), Exchange Rate (EXR), Foreign Direct 

Investment (FDI), Money Supply (M2) and Inflation (INF). The Ghana Stock Exchange All 

Share Index (GSE-ASI) was used as a proxy for stock price movement in Ghana. Money 

Supply and inflation were stationary at levels but Gross Domestic Product, Foreign Direct 

Investment and Exchange rate were stationary after first difference. The study revealed that 

amongst the five variables used, only exchange rate has a significant effect on the stock market 

prices in Ghana. However, Exchange rate and Foreign Direct Investment have positive 

relationship with stock market prices but Gross Domestic product, Money supply and Inflation 

have negative relationship with stock market prices. The Government should monitor exchange 

rate since it has a positive significant influence on stock market prices.

TABLE OF CONTENTS

CANDIDATE DECLARATION ..........................................Error! Bookmark not defined.

SUPERVISOR’S DECLARATION ........................................................................................i

DEDICATION..........................................................................................................................ii

ACKNOWLEDGEMENT..................................................................................................... iii

ABSTRACT.............................................................................................................................iv

LIST OF TABLES.................................................................................................................vii

LIST OF FIGURES ............................................................................................................. viii

LIST OF ACRONYMS AND ABBREVIATIONS ..............................................................ix

CHAPTER ONE : INTRODUCTION ...................................................................................1

1.1 Background of the study ..................................................................................................1

1.2 Problem statement............................................................................................................4

1.3 Objectives of the study.....................................................................................................5

1.3.1 General.......................................................................................................................5

1.3.2 Specific ......................................................................................................................5

1.4 Purpose of Study ..............................................................................................................5

1.5 Hypothesis........................................................................................................................6

1.6 Scope of the study ............................................................................................................7

1.7 Organization of the study .................................................................................................7

CHAPTER TWO : LITERATURE REVIEW......................................................................8

2.1 Theoretical Framework ....................................................................................................8

2.1.1 Efficient Market Hypothesis......................................................................................8

2.1.2 Short Interest Theory.................................................................................................9

2.1.3 Exchange Rates Theory...........................................................................................10

2.1.4 Internalization Theory .............................................................................................10

2.2 Empirical Review...........................................................................................................10

2.2.1 Evidence from Developed Countries.......................................................................11

2.2.2 Evidence from Africa ..............................................................................................12

2.2.3 Evidence from Ghana ..............................................................................................13

 2.3 Ghana Stock Exchange ………………………………………………………………. 15

CHAPTER THREE : METHODOLOGY..........................................................................16

3.1 Research Design.............................................................................................................16

3.2 Data Source and Collection Method ..............................................................................16

3.3 Description of Variables.................................................................................................17

3.3.1 GSE All-Share Index ...............................................................................................17

3.3.2 Gross Domestic Product ..........................................................................................17

3.3.3 Exchange Rate .........................................................................................................18

3.3.4 Foreign Direct Investment (FDI).............................................................................18

3.3.5 Money Supply..........................................................................................................19

3.3.6 Inflation ...................................................................................................................19

3.4 Model Specification .......................................................................................................19

3.5 Model Adequacy/Diagnostic Checking .........................................................................21

3.5.1 Cointegration ...........................................................................................................21

3.5.2 Unit Root Test .........................................................................................................22

3.5.3 F- Test Statistics ......................................................................................................23

 3.5.4 T-Test Statistics ………………………………………………………………….. 23

3.5.5 Shapiro-Wilk test.....................................................................................................24

3.5.6 Breusch- Pagan test .................................................................................................25

CHAPTER FOUR : DATA COLLECTION, ANALYSIS AND RESULTS....................26

4.1 Source of Data................................................................................................................26

4.2 Classification of Variables.............................................................................................26

4.3 Summary Statistics of the Variables ..............................................................................27

4.4 Construction of Model ...................................................................................................27

4.5 Graph of Time Series Plot..............................................................................................29

4.6 Cointegration Test..........................................................................................................30

4.7 Unit Root Test................................................................................................................31

4.8 Estimation of model Parameters ....................................................................................33

4.9 Model Diagnostic Test ...................................................................................................34

4.9.1 Normality Test.........................................................................................................34

4.9.2 Breusch-Pagan / Cook- Weisberg test for heteroscedasticity..................................35

CHAPTER FIVE : SUMMARY, CONCLUSION AND RECOMMENDATION...........36

5.1 Summary and Conclusion ..............................................................................................36

5.2 Recommendations..........................................................................................................37

5.2.1 To the Investors.......................................................................................................37

5.2.2 To the Government..................................................................................................38

5.3 Limitations of The Study................................................................................................38

5.4 Further Research ............................................................................................................38

REFERENCES.......................................................................................................................39

LIST OF TABLES

Table 4.3.1 Summary Statistics of the Variables..............................................................27

Table 4.6.1 Cointegration Test Results ............................................................................30

Table 4.7.1 Unit Root Test of model variables at levels. .................................................31

Table 4.7.2 ADF and PP Unit Root Test after First difference ........................................32

Table 4.8.1 Model Parameters..........................................................................................33

Table 4.9.1 Shapiro-Wilk test for normal data .................................................................34


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APA

Sena, J (2019). The effect of some macroeconomic variables on stock market price. Afribary.com: Retrieved March 09, 2021, from https://afribary.com/works/complete-work

MLA 8th

Juliet, Sena. "The effect of some macroeconomic variables on stock market price" Afribary.com. Afribary.com, 24 Jun. 2019, https://afribary.com/works/complete-work . Accessed 09 Mar. 2021.

MLA7

Juliet, Sena. "The effect of some macroeconomic variables on stock market price". Afribary.com, Afribary.com, 24 Jun. 2019. Web. 09 Mar. 2021. < https://afribary.com/works/complete-work >.

Chicago

Juliet, Sena. "The effect of some macroeconomic variables on stock market price" Afribary.com (2019). Accessed March 09, 2021. https://afribary.com/works/complete-work