The Impact Of Inflation On Stock Market Performance In Ghana

ABSTRACT

Stocks represent ownership in a corporation or a company in finance. They are sometimes referred to as equities or shares. The converging place of the buying and selling of stocks is what is referred to as a Stock Market/Exchange. The main objective for the study was to determine how inflation impacts the stock market performance in Ghana to help companies and individuals make informed decisions when there are changes in inflation rate. A quantitative approach of data analysis was employed to analyse secondary data obtained covering a 25-year period for the study. Three models were fitted between inflation and three different measures of stock markets performance: percentage change in the composite index, market capitalization-to-GDP ratio, and market turnover ratio. Descriptive statistics from 1994 to 2006 revealed the highest and lowest inflation figures to be 59.32% and 11.68% respectively with a mean inflation of 24.94%. This compared unfavourably to inflationary figures from the period 2007 to 2018 with 17.46%, 6.70% and 12.15% as the highest, minimum and average inflationary figures respectively. The study also brought to bare that in a high inflationary period, 1994 to 2006, there was a negative correlation between the stock market indicators and inflation. This indicates that stock market was not a good hedge against inflation during the period under consideration. In the subsequent period, 2007 to 2018 which was a low inflationary period, there was a positive relationship between inflation and the stock market indicators. The study recommends that the central bank maintains inflation at low levels. Thus, inflation rates must be kept significantly low so that they do not erode the value of returns investors earn in the market. Also, the GSE and the Securities and Exchange Commission should intensify public insight and education of equity investments and transactions to attract more listings on the Exchange and more opportunities for trading. This will directly lead to an increase in market capitalisation.