Determining Whether the Geometric Brownian Motion Model is An Appropriate Model for Forecasting Stock Prices on the Ghana Stock Exchange

Isaac Junior Damptey


This study examined the appropriateness of the Geometric Brownian Motion model in forecasting stock prices on the Ghana stock exchange (GSE). Quantitative approach was employed to analyze and forecast secondary data sourced from the Ghana stock exchange (GSE). The target population was thirty-six (36) listed companies out of which top 10 market performers were purposely sampled for the study. The study used closing offer market price to analyze data from January 2008 to July 2015.The chi-square test was used to test the research hypothesis. Furthermore, the stock prices were simulated using the model in Microsoft excel, and R software.  The findings showed that after simulating weekly stock prices, the true values of seven (7) listed companies out of the ten (10) does not lie in the confidence interval of the simulated values. The study also failed to accept the null hypothesis tested. Additionally, since all the MAPE values discovered were between 0% and 10%, it implies that the GBM model is a highly accurate model for forecasting stock prices on the Ghana Stock Exchange. Therefore, concludes based on the several tests conducted that the Geometric Brownian Motion (GBM) model is an appropriate model for forecasting stock prices on the Ghana stock exchange.

Key words: Geometric Brownian Motion, Forecast, Stock Prices

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