Investigating the role of economic factors in shaping stock market trends in Ghana

Abstract

This study examines the macroeconomic determinants of stock market performance in Ghana, addressing a gap in the literature by incorporating Fintech as a novel determinant alongside Gross Domestic Product (GDP), the Consumer Price Index, foreign direct investment, government expenditure and population growth. Using Autoregressive Distributed Lag (ARDL) and Two-Stage Least Squares (2SLS) models with time-series data from 1991 to 2023. The analysis finds that GDP positively drives market performance, while the Consumer Price Index negatively impacts returns, supporting the Efficient Market Hypothesis and Economic Growth Theory. Fintech shows a negative short-run effect in ARDL, reflecting Ghana’s market inefficiencies, but a positive effect in 2SLS, suggesting efficiency potential. Policy recommendations include monetary tightening, economic diversification and Fintech regulation. The study contributes to emerging market finance by elucidating Fintech’s role in Ghana’s low-liquidity market, highlighting the need for inflation control, economic diversification, and balanced Fintech regulation to foster stable growth, benefiting investors and financial institutions in Ghana and similar economies.