Investing in cocoa-gold sector and the crude oil priceexchange rate uncertainty in Ghana: Volatility transmission and hedging approach

Abstract

Cocoa and gold are the major drivers of Ghana’s economic growth and hence these two sectors have been identified by potential investors as the best options for portfolio allocation. This paper assessed the best investments options between the cocoa and gold sectors with in a fluctuating world crude oil price and a fluctuating domestic currency against the United States (US) dollar. A VAR (1)-BEKK GARCH model was applied to returns from four sectors spanning January 1990 to December 2015. Results confirmed that with the unstable oil prices, the agriculture and mining sectors are directly influenced by the Ghana Cedi’s performance against the US dollar due to the stock market coupled with transportation and production costs. Cocoa presented the best option for investments compared to gold and this is attributed to improved premium prices for Ghana’s cocoa.