The Effect of Global Financial Crisis on Stock Market Returns in Ghana

Abstract

The Global financial crisis which started in 2007 in USA had several effects on the country and other developed economies. The objective of our study was to examine the effect of global financial crisis on stock market returns from the perspective of a developing country such as Ghana. Data was taken from the Bank of Ghana (BOG) for the period of 2000-2013 using annual time series while using Ordinary Least Square (OLS) estimation approach for the regressions. The findings per the regression and our analysis indicated that for most part, financial crisis positively affected Ghana stock market although there also an evidence that, it may have a negative effect. Thus, the impact of financial crisis on stock market returns in Ghana is inconclusive and depends on the model specification. Exchange rate depreciation and trade openness also negatively affected the stock market returns in Ghana. However, financial development proxy by private credit and inflation positively affects the stock market returns in Ghana. Moveover, reduction in investment and savings from local and foreign investors, drop in remittance and higher price financial flow from international financial market as well as a stagnant growth of the financial market and declined external demand for Ghana export are the implications of financial crisis on Ghana stock market returns. Furthermore, government should liberalize their stock market more international in order to attract foreign investors and also government should stabilize prices and maintain balance of payment equilibrium. However, the general public should be made aware on the negative effect of global financial crisis on the stock market returns.