Foreign Exchange Reserve and Its Impact on Stock Market: Evidence from Ghana

Emmanuel Joel Aikins Abakah^1, and Moses Kenneth Abakah²

¹School of Business and Law, Edith Cowan University, Perth, Australia

²Operations Department, Central Securities Depository, Accra, Ghana

Cite this paper:
Emmanuel Joel Aikins Abakah and Moses Kenneth Abakah. Foreign Exchange Reserve and Its Impact on Stock Market: Evidence from Ghana. Journal of Finance and Economics. 2016; 4(5):136-141. doi: 10.12691/jfe-4-5-2

Abstract

This study investigated the impact of foreign exchange reserves on stock market growth in Ghana by employing monthly data for the period of December 2001 to December, 2015 using a multivariate framework that integrated interest rate variable in the modelling. The result shows that foreign exchange reserve has a significant positive impact on stock market capitalization and that all the three variables employed in this study are cointegrated. Unidirectional relationship exists between foreign exchange reserve and stock market capitalization. Hence this paper concludes that enhancing the nation’s foreign exchange reserves will bolster stock market growth in Ghana. Finally interest rate needs to be set right to boost the performance of the stock market since interest rate emerged as a very important variable in examining the nexus between stock market and foreign exchange reserve of Ghana.

Keywords:
foreign exchange reserve stock market capitalisation and stock market

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