The Effect of Exchange Rate and Interest Rate Volatilities on Stock Prices: Further Empirical Evidence from Ghana

  • Grace Ofori-Abebrese Department of Economics, Kwame Nkrumah University of Science and Technology
  • Samuel Tawiah Baidoo Department of Economics, Kwame Nkrumah University of Science and Technology https://orcid.org/0000-0001-5941-6308
  • Peter Yaw Osei Republic Bank Investments, Accra-Ghana
Keywords: Exchange Rate, Stock Prices, Volatility, Financial Markets, GARCH Model

Abstract

Studies have proven that volatilities in the rates of exchange and interest influence the performance of institutions and the values of their shares. This study investigates empirically the effect of exchange rate and interest rate volatilities on stock prices of financial institutions listed on the Ghana Stock Exchange using monthly data spanning the period January 2000 to October 2016. The generalized auto regressive conditionality heteroskedastic (GARCH) model is employed for the analysis. The results show that exchange rate volatility exerts positive effect on stock prices whereas interest rate volatility impacts on stock prices negatively. These results imply that the trade-off between risk and return can be predicted so industry players and stakeholders can manage risk to ensure a vibrant financial market. It is also suggested that there is the need for stakeholders and policy makers to ensure that these variables are stable or the volatilities are minimized in the economy. This will go a long way to enhance the performance of the stock market activities in the country.

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Author Biographies

Grace Ofori-Abebrese, Department of Economics, Kwame Nkrumah University of Science and Technology

Department of Economics 

Kwame Nkrumah University of Science and Technology, Kumasi, Ghana. 

Samuel Tawiah Baidoo, Department of Economics, Kwame Nkrumah University of Science and Technology

Department of Economics

Kwame Nkrumah University of Science and Technology, Kumasi

Peter Yaw Osei, Republic Bank Investments, Accra-Ghana

Republic Bank Investments

Accra-Ghana

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Published
2019-12-31
How to Cite
Ofori-Abebrese, G., Baidoo, S., & Osei, P. (2019). The Effect of Exchange Rate and Interest Rate Volatilities on Stock Prices: Further Empirical Evidence from Ghana. Economics Literature, 1(2), 117-132. Retrieved from https://elit.weri.eu/index.php/elit/article/view/15
Section
Articles