Dynamic Effects of Inflation and Interest Rate Risks on Stock Market Returns in Ghana: Exploring non-linearities

K. B. Afful


This study examines the dynamic impact of inflation and interest rate volatilities on stock market returns in Ghana. In both the constructed base linear and extended non-linear models, market returns have negatively autoregressive in the short-run. Also, interest rate risk has a slight direct effect in the base linear model in the same time period. However, at equilibrium for the said model, both risks influence returns. For the non-linear model, only interest rate volatility and the interaction between the two risks affect market returns in the long run. Possibly, market inefficiency inhibits explanatory power of the non-linear model.

Keywords: error correction analysis, inflation volatility, interest rate risk, stock market returns

JEL classification: C32, C57, E43, G32.

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ISSN (Paper)2222-1905 ISSN (Online)2222-2839

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