Journal of
Economics and International Finance

  • Abbreviation: J. Econ. Int. Finance
  • Language: English
  • ISSN: 2006-9812
  • DOI: 10.5897/JEIF
  • Start Year: 2009
  • Published Articles: 315

Full Length Research Paper

The Inflation-Stock market returns Nexus: Evidence from the Ghana Stock Exchange

Michael Adusei
  • Michael Adusei
  • Department of Accounting and Finance, KNUST School of Business, Kwame Nkrumah University of Science and Technology, PMB, UPO-KNUST-Kumasi-Ghana.
  • Google Scholar

  •  Accepted: 13 February 2014
  •  Published: 28 February 2014


The relationship between inflation and stock market returns has been theoretically and empirically discussed albeit inconclusive results. Whereas some studies find a positive relationship, others find a negative relationship. This paper contributes to the empirical conversation using data (January 1992-December 2010) from the Ghana Stock Exchange (GSE) which is one of the emerging markets in Africa. Employing unit root tests, ARDL approach to co-integration and Granger Causality in the Error Correction Model for analysis, the study finds that there is a negative statistically significant relationship between inflation and stock returns in the short run and a positive statistically significant relationship in the long run. In terms of direction of causality, evidence is found in support of unidirectional causality running from inflation to stock returns, meaning inflation drives stock market returns towards long-term equilibrium. 

Key words: Inflation, development, stock exchange, systematic risk.