Investigating the effect of exchange rate changes on stock market returns in Ghana a case study of Ghana stock exchange (2007-2015)

Abstract

This study was based on the effect of exchange rate changes on stock market returns. It could be seen that exchange rate from the previous years have been increasing at a faster rate, in the same way stock market returns has also been unstable. It was therefore to determine the relationship between exchange rate and stock market. The study made use of monthly data of Ghana stock exchange All-share index and exchange rate variable from January 2007 through December 2015; to examine the extent to which exchange rate variable influence the stock market returns both in the short run and long run with the following test Johansen Juselius (JJ) co-integration test, Vector Error Correction Model(VECM). The study establishes that there is long-run relationship between stock market returns and exchange rate .It was also found that in the short- run, there is a negative relationship between the stock market returns and the exchange rate. The results provide some insights into the effects of exchange rate on the stock market index in Ghana. This can help the policy makers and investors in decision on planning and portfolio investment. It is also recommended that investors consider inflation and foreign direct investment and its performance.