Testing for Mispricing of Stocks on the Ghana Stock Exchange: A Case of Selected Banking Stocks

Abstract

This paper is aimed at investigating mispricing of stocks on the Ghana stock exchange. Four stocks mainly the banking stocks were sampled for the purpose of this study. Mispricing of stocks in this paper is measured as the difference between the current dividend-price ratio and rationally estimated fundamental value of stock using Campbell and Shiller (1988) model. A monthly mispricing is estimated for the period 2000 to 2015 and the results of the test for mispricing on the selected stocks show that their prices significantly deviate from their fundamental value.

Keywords: Rationality, Market pricing, Imperfect market, Fundamental value, Stock prices, Mispricing