The Effect of Exchange Rate and Interest Rate Volatilities on Stock Prices: Further Empirical Evidence from Ghana

Abstract

Studies have proven that volatilities in the rates of exchange and interest influence the performance of institutions and the values of their shares. This study investigates empirically the effect of exchange rate and interest rate volatilities on stock prices of financial institutions listed on the Ghana Stock Exchange using monthly data spanning the period January 2000 to October 2016. The generalized autoregressive conditional heteroskedastic (GARCH) model is employed for the analysis. The results show that exchange rate volatility exerts a positive effect on stock prices whereas interest rate volatility impacts on stock prices negatively. These results imply that the trade-off between risk and return can be predicted so industry players and stakeholders can manage risk to ensure a vibrant financial market. It is also suggested that there is a need for stakeholders and policymakers to ensure that these variables are stable or the volatilities are minimized in the economy. This will go a long way to enhance the performance of the stock market activities in the country.

Sukuk and monetary policy transmission in Indonesia: the role of asset price and exchange rate channels

“…The basic concept of this model is to explain the role of sukuk in the monetary policy mechanism through the exchange rate channel. When monetary policy is expansive, the value of domestic interest rates would decline due to an increase in inflation (Ofori-Abebrese et al, 2019;Ellington and Milas, 2019). This condition drives investors to denominate deposits into foreign currencies (Mishkin, 2001), including Indonesia's global sukuk (green sukuk) that are traded in the global capital markets.…”