Interest Rate, Inflation and Stock Market Performance in Ghana : A Sector Based Vector Error Correction Model Perspective 

This paper sought to examine the effect of inflation and interest rate on stock returns in Ghana at the sectoral level using monthly data from 2010 to 2016. By employing the Johansen cointegration technique as well as the Vector Error Correction Model (VECM) estimator, the results reveal a negative and significant effect of inflation and interest rate on the overall stock market performance in the long run. In specifics, the sector that is highly affected by inflation changes is the petroleum sector, followed by the consumer staples sector, financial sector and mining sector. With regards to interest rate, consumer staples sector is the most affected, followed by financial sector and mining sector. The paper therefore recommends for prudent macroeconomic policies in the areas of interest rate and inflation in Ghana to derive maximum benefits from the stock markets.