ID : 10743819
COURSE : MONEY AND BANKING II (ECON 474)
COURSE INSTRUCTOR: DR RICHARD K. AYISI
DATE : 03-08-2022
QUESTION
How will does the stock market anticipate the behavior of the economy? Plot the
percentage change from a year ago of the Ghana stock index. Is the index a reliable
predictor of business cycle downturns? Explain.
I. Relationship between stock market and the economy
In general, the stock market will represent the state of an economy. When an
economy grows, output rises, and most businesses profit more. Because they can
pay larger dividends to shareholders thanks to the increasing profit, the company's
shares become more appealing. A sustained period of economic expansion will often
be advantageous for shares.But is this usually the case?
Ghana is an example of a less developed country (LDC) where the stock market is
inefficient, meaning that it cannot swiftly analyze all of the information available to
determine stock values.Furthermore, the market remains mostly unexplored due to
significant risk, which stems primarily from political uncertainty.
II. the percentage change from a year ago of the Ghana stock index
With respect to figure 1.1
1
PERIODS
MONTHS
2021/2022
1
DEC-2020
1,941.59
2
JANUARY
2,027.12
3
FEBRUARY
2,200.92
4
MARCH
2,213.29
5
APRIL
2,561.45
6
MAY
2,421.11
7
JUNE
1899.9
8
JULY
2,643.67
9
AUGUST
2,717.30
10
SEPTEMBER 2,750.37
11
OCTOBER
2,864.31
12
NOVEMBER 2,866.76
13
DECEMBER
2,789.34
% CHANGE
0.00
4.41%
8.57%
0.56%
15.73%
-5.48%
-21.53%
39.15%
2.79%
1.22%
4.14%
0.09%
-2.70%
Figure 1.1
GSE Composite Index - End of Months for
2021
Axis % CHANGE IN INDEX
0,50
0,40
0,30
0,20
0,10
0,00
-0,10
-0,20
-0,30
0
1
2
3
4
5
6
7
8
9
10
11
12
PERIODS
Figure 1.2
III.predicting business cycle downturns with GSE index.
2
13
14