Journal of Risk Finance, The

Purpose – The study aims at examining how macroeconomic indicators affect the performance of stock markets by using the Ghana Stock Exchange as a case study.

Design/methodology/approach – Quarterly time series data covering the period 1991-2005 were used. Cointegration and the error correction model techniques are employed to ascertain both short- and long-run relationships.

Findings – Findings of the study reveal that lending rates from deposit money banks have an adverse effect on stock market performance and particularly serve as major hindrance to business growth in Ghana. Again, while inflation rate is found to have a negative effect on stock market performance, the results indicate that it takes time for this to take effect due to the presence of a lag period; and that investors benefit from exchange-rate losses as a result of domestic currency depreciation.

Originality/value – The single most important contribution of this study is its emphasis on macroeconomic variables and stock market performance in a small country, since most studies have concentrated on stock markets and economic growth in advanced economies.