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The Threshold Effect of Inflation on Capital Market Performance: A Case of Ghana Stock Exchange

Received: 26 September 2020     Accepted: 15 October 2020     Published: 30 October 2020
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Abstract

The purpose of this study is to investigate the threshold effect of inflation on capital market performance. The study employed a Threshold Autoregressive model introduced by Tong (1978) and Hansen (1996). The study used secondary quarter-time series data for thirty-years from 1990 to 2019. The capital market performance was measured by the value of shares traded; market turnover; market capitalization and all-shares index. However, the results revealed the following estimated threshold level of inflation for each performance indicator: 3.77%; 4.12%; 4.15%, and 4.22% respectively. In all, the threshold level of inflation estimated was between 3 to 4%. The findings suggest that low inflation is performance-enhancing. Besides, inflation above the threshold level is detrimental to the capital market performance. The study further concluded that the exchange rate equally affects the performance of the capital market. The findings of this investigation might be helpful to the government of Ghana and policymakers as they settle on an inflation target to adopt to avoid the detrimental effects of high inflation while obtaining the growth benefits of low inflation.

Published in Journal of Business and Economic Development (Volume 5, Issue 4)
DOI 10.11648/j.jbed.20200504.11
Page(s) 199-207
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Capital Market Performance, Inflation, Threshold Autoregressive, Market Capitalization All-Shares Index, Turnover Ratio

References
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[3] Baglan, D., Yoldasz, E. 2014. Non-linearity in the Inflation-Growth Relationship in Developing Economies: Evidence from a Semiparametric Panel Model. Economics Letters, 125 (1): 93–96.
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[7] Donwa, P., & Odia, J. (2010). An Empirical Analysis of the Impact of the Nigerian Capital Market on Her Socio-economic.
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[10] Jepkemei, B. (2017). The Impact of Inflation on Stock Market Liquidity: A Case of Nairobi Securities Exchange, Kenya. International Journal of Economics, Commerce and Management, 5 (1), 319–350.
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[12] Frimpong, J. M. and Oteng-Abayie, E. F. (2010). When is Inflation Harmful? Estimating the Threshold Effect for Ghana. American Journal of Economics and Business Administration 2 (3): 232-239.
[13] Gylfason, T., & Herbertsson, T. (2001). Does inflation matter for growth? Japan and the World Economy, 13 (4), 405-428. http://dx.doi.org/10.1016/S0922-1425(01)00073-1.
[14] Hansen, B. (1996), “Inference when a nuisance parameter is not identified under the null hypothesis,” Econometrica, 64, 413-30.
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[19] Khan, M. S. and Senhadji, A. S. (2001). Threshold Effects in the Relationship between Inflation and Growth. IMF Staff Papers 48, 1-21.
[20] Kremer S., Bick A. and Nautz D. (2009). Inflation and Growth: New Evidence from a Dynamic Panel Threshold Analysis. SFB 649 Discussion Paper.
[21] Lee C., and S. Y Wong, (2005), “Inflationary threshold effects in the relationship between financial development and economic growth: evidence from Taiwan and Japan”, Journal of Economic Development, 30 (1), 49-68.
[22] Madurapperuma, M. W. 2016. Impact of inflation on economic growth in Sri Lanka, Journal of World Economic Research, 5 (1): 1-7. DOI: 10.11648/j.jwer.20160501.11.
[23] Ndoricimpa, Arcade. (2017), Threshold Effects of Inflation on Economic Growth in Africa: Evidence from a Dynamic Panel Threshold Regression Approach, Working Paper Series N° 249, African Development Bank, Abidjan, Côte d’Ivoire.
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  • APA Style

    David Mensah Awadzie. (2020). The Threshold Effect of Inflation on Capital Market Performance: A Case of Ghana Stock Exchange. Journal of Business and Economic Development, 5(4), 199-207. https://doi.org/10.11648/j.jbed.20200504.11

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    ACS Style

    David Mensah Awadzie. The Threshold Effect of Inflation on Capital Market Performance: A Case of Ghana Stock Exchange. J. Bus. Econ. Dev. 2020, 5(4), 199-207. doi: 10.11648/j.jbed.20200504.11

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    AMA Style

    David Mensah Awadzie. The Threshold Effect of Inflation on Capital Market Performance: A Case of Ghana Stock Exchange. J Bus Econ Dev. 2020;5(4):199-207. doi: 10.11648/j.jbed.20200504.11

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  • @article{10.11648/j.jbed.20200504.11,
      author = {David Mensah Awadzie},
      title = {The Threshold Effect of Inflation on Capital Market Performance: A Case of Ghana Stock Exchange},
      journal = {Journal of Business and Economic Development},
      volume = {5},
      number = {4},
      pages = {199-207},
      doi = {10.11648/j.jbed.20200504.11},
      url = {https://doi.org/10.11648/j.jbed.20200504.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20200504.11},
      abstract = {The purpose of this study is to investigate the threshold effect of inflation on capital market performance. The study employed a Threshold Autoregressive model introduced by Tong (1978) and Hansen (1996). The study used secondary quarter-time series data for thirty-years from 1990 to 2019. The capital market performance was measured by the value of shares traded; market turnover; market capitalization and all-shares index. However, the results revealed the following estimated threshold level of inflation for each performance indicator: 3.77%; 4.12%; 4.15%, and 4.22% respectively. In all, the threshold level of inflation estimated was between 3 to 4%. The findings suggest that low inflation is performance-enhancing. Besides, inflation above the threshold level is detrimental to the capital market performance. The study further concluded that the exchange rate equally affects the performance of the capital market. The findings of this investigation might be helpful to the government of Ghana and policymakers as they settle on an inflation target to adopt to avoid the detrimental effects of high inflation while obtaining the growth benefits of low inflation.},
     year = {2020}
    }
    

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    T1  - The Threshold Effect of Inflation on Capital Market Performance: A Case of Ghana Stock Exchange
    AU  - David Mensah Awadzie
    Y1  - 2020/10/30
    PY  - 2020
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    DO  - 10.11648/j.jbed.20200504.11
    T2  - Journal of Business and Economic Development
    JF  - Journal of Business and Economic Development
    JO  - Journal of Business and Economic Development
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    EP  - 207
    PB  - Science Publishing Group
    SN  - 2637-3874
    UR  - https://doi.org/10.11648/j.jbed.20200504.11
    AB  - The purpose of this study is to investigate the threshold effect of inflation on capital market performance. The study employed a Threshold Autoregressive model introduced by Tong (1978) and Hansen (1996). The study used secondary quarter-time series data for thirty-years from 1990 to 2019. The capital market performance was measured by the value of shares traded; market turnover; market capitalization and all-shares index. However, the results revealed the following estimated threshold level of inflation for each performance indicator: 3.77%; 4.12%; 4.15%, and 4.22% respectively. In all, the threshold level of inflation estimated was between 3 to 4%. The findings suggest that low inflation is performance-enhancing. Besides, inflation above the threshold level is detrimental to the capital market performance. The study further concluded that the exchange rate equally affects the performance of the capital market. The findings of this investigation might be helpful to the government of Ghana and policymakers as they settle on an inflation target to adopt to avoid the detrimental effects of high inflation while obtaining the growth benefits of low inflation.
    VL  - 5
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Author Information
  • AIT Business School, Accra Institute of Technology, Accra, Ghana

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