Botswana Journal of Economics

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Do economic policy decisions affect stock market development in Ghana?

Grace Ofori-Abebrese, Eugenia Amporfu, Daniel Sakyi


The Efficient Market Hypothesis proposes that macroeconomic policy actions do not influence stock market development but the Tobin’s q theory argues otherwise. This paper uses the autoregressive distributed lag (ARDL) technique to investigate the impact of macroeconomic policy on the development of the Ghana Stock Exchange for the period 1991-2011. The paper finds government revenue and exchange rate reduce stock market development. A policy mix identified was that, the outcomes of  government expenditure and government borrowing interest rate exert no influence on stock market development. For equity investors not to easily transfer their investments in response to changes in macroeconomic policies among others, the study recommends good macroeconomic management.

Keywords: Stock Market Development, Macroeconomic policy, Government spending, ADRL, Ghana, West Africa

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