Abstract

This study examines whether generalized Fisher hypothesis, which says that there is a positive relationship between stock market returns and inflation rate holds for Ghana, over the period of the first quarter of 1998 to the fourth quarter of 2007 (1998 q1 to 2007 q4). The empirical methodology uses autoregressive distributed lag (ARDL) cointegration technique to detect possible long- and short-run effects between the involved variables. The results provide evidence in favour of a negative long-run relationship between the considered series. The recommendation is that monetary authorities should do their best to control the level of inflation so as to increase the stock returns of the Ghana stock exchange to incentivize investors from home and abroad.

Key words: Autoregressive distributed lag (ARDL) co-integration, Fisher hypothesis, Ghana, inflation, proxy hypothesis, stock market.