Three essays on stock exchange market development in Ghana
1. Stock markets development enables firms to acquire much needed capital quickly and reduces investment risk due to the ease with which equities are traded and facilitates capital allocation and investment. However, critics on the role of stock market in economic development concentrate more on the fact that without efficient and well-developed financial system, the acclaimed benefits may not be realised. In developing and inefficient systems, for instance, the stock market may not be able to reflect real fundamentals and may mislead investors from making optimal investment decisions. This argument has been reiterated by the studies of Montiel (1996) and Yartey and Adjasi (2007) among others. This study used annual time series data for the period 1991 to 2011 to examine whether stock market development enhances growth in private investment. The Autoregressive Distributed Lag Model was used to estimate the coefficients of the selected variables. The results show that in effect, a positive and significant relationship exists between stock market development and private investment growth in Ghana. It is therefore recommended that Private Enterprise Federation should intensify its education policies to its members about the benefits firms derive by getting listed on the stock market and also encourage them in this direction. 2. Stock markets mobilises long term capital for firms and thus facilitate economic growth. There however exist different conclusions on theoretical and empirical studies of the relationship between stock exchange development and economic growth. This has provided the basis for a further empirical investigation on the nexus between stock market development and economic growth in Ghana. This study uses secondary data on market size (stock market development indicator), human capital, foreign direct investment, inflation and money supply for the period from 1991 to 2011.The study reported that stock market development has not been an ingredient to long-run growth of the economy. This was confirmed by the granger causality test that there is no nexus between stock market development and economic growth in Ghana. In view of this finding, the study recommends that policy makers should embark on macroeconomic stability and friendly private sector development policies such as a resolution of the energy challenges in the country to enhance the performance of companies in the country. In addition, the study recommends that although the Ghana Stock Exchange is new, illiquid and highly concentrated, it has a great potential so authorities should intensified the mobilization of domestic savings and foreign capital to increase the demand for shares in order to enhance stock market liquidity to facilitate long-run economic growth. A further study into the negative relationship between market capitalisation and economic growth in Ghana is suggested. 3. Fluctuations in macroeconomic variables such as interest rate, exchange rate, government expenditure, money supply among others seem to impact on stock market performance. The Efficient Market Hypothesis and some empirical studies propose that macroeconomic policy actions do not influence stock market development but the Tobin’s q theory and some empirical literature have found evidence of significant impact on stock market returns. It is therefore imperative to look at how government policies and institutions affect equity-market performance across countries in order to draw the attention of policy makers to the impacts of some of the policy actions they take on the stock market. This study investigates the possible influence that macroeconomic policy has on the development of Ghana stock market. The ARDL method was used for the study. The study found a negative but significant relationship between government revenue and stock market development. The policy mix identified by the study was that, the outcomes of government expenditure and government borrowing interest rate do not impact on stock market development. Real exchange rate showed a negative relationship with stock market development. The study recommends policy makers to manage the macroeconomic variables well as the possible outcomes can cause equity investors to easily transfer their investments in response to changes in government policies among others. Based on the policy-mix identified, the study proposes that fiscal policy management can focus on government spending.
A thesis submitted to the School of Graduate Studies in fulfillment of the requirement for the award of Doctor of Philosophy (Ph.D.) degree in Economics , 2015