Evaluating Volatility Dynamics and Testing the Efficiency of the Ghana Stock Exchange
Winfred Ashitey
University of Kigali
Email: winfredashitey@gmail.com
Abstract: This study provides an integrated analysis of weak-form market efficiency, volatility dynamics, and macroeconomic shock transmission on the Ghana Stock Exchange (GSE) over a ten-year period from November 2015 to October 2025. The data was obtained from both the Ghana stock exchange and the Bank of Ghana. Using daily closing prices of the GSE Composite Index alongside exchange rate and interest rate data from the Bank of Ghana, the study applies a comprehensive suite of econometric methods. Weak-form efficiency is tested using the ADF, Runs, Variance Ratio, and BDS tests on 2,454 daily return observations. Volatility dynamics are modelled using GARCH(1,1), GJR-GARCH(1,1), and EGARCH(1,1), while macroeconomic shocks are examined through extended GARCH models with exchange rate and interest rate changes as external regressors on 491 weekly observations. Asymmetric effects of shocks are tested through a purpose-built asymmetric variance equation. The GSE is found not to be weak-form efficient: the Runs, Variance Ratio, and BDS tests reject return randomness, confirming significant return dependence, mean reversion, and nonlinear structure. GSE daily returns also exhibit significant time-varying volatility, strong persistence, and a reverse leverage effect, whereby positive shocks raise conditional variance more than negative shocks of equal magnitude. The preferred GJR-GARCH(1,1) model estimates a long-run daily volatility of approximately 0.98% and a half-life of roughly 13 trading days. Exchange rate and interest rate shocks are statistically insignificant in driving GSE conditional variance, and negative shocks produce no asymmetric effects, indicating that GSE volatility asymmetry is endogenous rather than macro-driven. The study contributes the first integrated framework simultaneously testing efficiency, volatility, and shock transmission on the GSE, with insights for investors, regulators, and listed companies.
