Abstract:
This study investigated the effect of petroleum price on stock market returns in
Ghana by using monthly data from 1990 to 2017. The study also examined the
causality among macroeconomic variables as well as the moderating effect of
financial crises and Ghana’s lower middle income status on stock market returns.
The study adopted the Autoregressive Distributed Lag (ARDL) model and the
Linear Regression Model to achieve the objectives of the study. The findings were
that there is both short run and long run relationships among the independent
variables and stock market returns; with a speed of adjustment towards long run
equilibrium of 2%. This means that it will take 50 months for the short run
deviations in the market to converge towards long run equilibrium. It was observed
that 2007/2008 financial crises did affect the changes in stock returns of Ghana but
does not moderate the relationship between petroleum price and stock returns. The
study recommended that the government should use petroleum subsidies to lower the
petroleum price levels in the domestic market in Ghana since petroleum price
negatively affect stock market returns. The government is also encouraged to
strengthen the capital market so that it can withstand future financial crises; but at
the same time should put in place policies that will move Ghana to higher income
status levels.
