Downstream Petroleum Prices and Stock Market Returns in Ghana: Pre and Post Deregulation Analysis

Abstract

The thesis analysed the impact of downstream petroleum prices on stock returns in Ghana with respect to downstream petroleum sector deregulation. After a Chow test, the monthly data employed was split into the pre-(09/2009 to 05/2015) and post-deregulation (06/2015 to 02/2021). The Auto-Regressive Distributed Lag estimator was used in establishing the long- and short-run relationship between the variables while controlling for exchange rate, lending rate, treasury bill rate, economic activity, and inflation. The findings indicated a cointegrating relationship among the variables. Further, for the pre-deregulation period, at the 5 percent significance level, it was found that downstream petroleum prices had a negative effect on stock returns in the long run, while there was insignificant relationship in the short run. However, in the post-deregulation era, at the 5 percent significance level, petroleum prices had an insignificant relationship with stock returns in both the long- and short-run dynamics. It was concluded that the deregulation did not have any adverse effect on investors' returns. Listed firms, perhaps, may have ignored the shocks from downstream petroleum prices in the pre-deregulated era but diverted the shocks from influencing returns on investment in the post-deregulated period. In light of the findings, it is recommended that the government develops policies that stabilise the macroeconomic environment to stimulate stock performance on the Ghana Stock Exchange. Furthermore, it is recommended that policymakers review policies affecting fuel prices, exchange rates, treasury bill rates, lending rates, economic activity, and inflation that promoted stock market returns which were implemented before the deregulation. Finally, investors, firms, and financial experts are recommended to take into cognisance the downstream petroleum pricing policies of the economy to accurately analyse and price assets.