A study of the Ghana stock market performance before and after general elections

• 1. A STUDY OF THE GHANA STOCK MARKET PERFORMANCE BEFORE AND AFTER GENERAL ELECTIONS GABRIEL ABBAM A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF MASTERS IN BUSINESS ADMINISTRATION INTERNATIONAL BUSINESS AT THE AMITY CENTER FOR E-LEARNING AMITY UNIVERSITY, NOIDA SEPTEMBER, 2012

2. ii ABSTRACT Numerous academic studies over the past four decades have examined the effect political cycles have on stock returns in the pursuit of discovering a predictable pattern investors can both follow and, if possible exploit. Their findings have come to the general consensus that an observable pattern exists throughout a number of economies around the world. Reasons for such movement are believed to be induced by governments either increasing or restricting monetary and fiscal policy in order to bolster prosperity, and thus their re-election chances. It is a common belief among many that markets should perform better under a right-of-centre government, as they are more likely to legislate in favour of business and are less concerned with welfare issues, with a preference toward the free market. Left-of-centre political parties tend to increase the level of inflation within economies through increased employment which finally leads to a decrease in stock performance. However such findings do not hold true in the US, as stocks perform better under left-of-centre Democratic Presidents than their right-of-centre Republican counterparts. This study analyses the performance of Ghana Stock Market performance before and after the last five general elections. The study focused on the GSE performance before and after the 1992, 1996, 2000, 2004 and 2008 general elections. The GSE month end indices for the period between 31st January 1991 and 30th November 2009 obtained from the GSE are analyzed using SPSS software version 6 to determine t-test for differences in means to aid in comparing significance of differences for the comparative study periods. The study revealed that there is a significant difference in the performance of the market for the years before and after the general elections. However, a comparison of the control years also shows that there is a significant difference in the performance of the market one year to the next. Therefore, it is difficult to conclude that the general election is the event that causes the difference in market performance. 3. iii ACKNOWLEDGEMENTS My profound gratitude and dedication goes to God Almighty, most gracious, most merciful. Truly, it is He who gives wisdom, knowledge and understanding. Special recognition and profound appreciation go to Mr. Samuel Acquah (Winneba) whose tutorials in SPSS software helped me tremendously in my analysis. My sincere gratitude also goes to Mr. G. T. Nyarko (Head Master of St. Paul School, Winneba), and Mr. Samuel Tandoh (University Clinic, University of Education, Winneba) for the immense support throughout this work. I dedicate again this work to my parents J. K and Mary, for their love and unwavering support both financially and emotionally throughout my years of education to this level. I express my heartfelt gratitude to my siblings- Patrick and Patricia for their love, unflinching support and prayers. Very special thanks go to Miss Mildred Aidoo (Sycamore Hospital, Takoradi) for the encouragement and being there for me. Finally thanks to Richard and Abena (course-mates) who in one way or the other contributed to make my project a success. God Bless you all! 4. iv TABLE OF CONTENTS TITLE PAGE i ABSTRACT ii ACKNOWLEDGEMENT iii TABLE OF CONTENTS iv LIST OF TABLES vii CHAPTER 1 1.0 INTRODUCTION 1 1.1 PROBLEM STATEMENT 3 1.2 OBJECTIVES 3 CHAPTER 2 2.0 LITERATURE REVIEW 4 2.1 THE STOCK MARKET 4 2.2 TRADING OF STOCK MARKET 5 2.3 HISTORY OF STOCK MARKET 7 2.4 THE ROLE OF THE STOCK MARKET 9 2.5 INDICATORS OF STOCK MARKET PERFORMANCE 11 2.6 CONSEQUENCES OF GENERAL ELECTIONS ON PERFORMANCE OF STOCK MARKET 14 2.6.1 Observations from US Studies 16 2.6.2 Observations from Australasian studies 18 2.6.3 Observations from African studies the Nairobi Case Study 19 5. v 2.7 HISTORY AND STRUCTURE OF THE GHANA STOCK MARKET 19 2.8 BACKGROUND OF GENERAL ELECTIONS IN GHANA 22 CHAPTER 3 3.0 RESEARCH METHODOLOGY 26 3.1 STUDY DESIGN 26 3.2 DATA COLLECTION 26 3.3 DATA ANALYSIS 26 CHAPTER 4 4.0 DATA ANALYSIS AND RESULTS 28 4.1 HYPOTHESIS TESTS 28 4.2 STATISTICAL ANALYSIS 29 4.2.1 Analysis for the period 1991/1992 29 4.2.2 Analysis for the period 1995/1996 30 4.2.3 Analysis for the period 1999/2000 31 4.2.4 Analysis for the period 2003/2004 31 4.2.5 Analysis for the period 2007/2008 32 4.3 YEARS FOR CONTROL 33 4.3.1 1993/1994 Control Period Market Performance 33 4.3.2 1997/1998 Control Period Market Performance 34 4.3.3 2001/2002 Control Period Market Performance 35 4.3.4 2005/2006 Control Period Market Performance 35 6. vi 4.3.5 Deduction from the Control Periods 36 4.4 SHORT TERM PERFORMANCE OF THE MARKET BEFORE AND AFTER ELECTIONS 36 4.5 PERFORMANCE OF GSE OVER THE PERIOD OF STUDY FROM POLITICAL PERSPECTIVE 37 4.5.1 GSE performance under NDC administration 38 4.5.2 GSE performance under NPP administration 38 CHAPTER 5 5.1 DISCUSSION AND CONCLUSION 39 REFERENCE 40 APPENDIX 45 APPROVED SYNOPSIS 46 7. vii LIST OF TABLES Table 1 Statistics for 1991/1992 Indexes 29 Table 2 Statistics for 1995/1996 Indexes 30 Table 3 Statistics for 1999/2000 Indexes 31 Table 4 Statistics for 2003/2004 Indexes 32 Table 5 Statistics for 2007/2008 Indexes 32 Table 6 Statistics for 1993/1994 Indexes 34 Table 7 Statistics for 1997/1998 Indexes 34 Table 8 Statistics for 2001/2002 Indexes 35 Table 9 Statistics for 2005/2006 Indexes 36 8. 1 CHAPTER 1 1.0 Introduction Stock market performance all over the world works as an indicator of the overall health of an economy. It gives signal to investors about their future moves. The movement in the price of a stock and the indexes gives the idea of the near future trend of the stock, sector or the economy as a whole. The stock market indexes typically give the overall performance of the market or a specific sector. Indexes reflect the performance of the economy or a sector in entirety. Stock prices are an indicator of the performance of the stock. If the price of a particular stock is rising then it is perceived that it has certain positive news or signals. However, if it decreases then there must be some news regarding its performance, which is generating negative signals to the market. Hence, the stock price movement and index movements show the general economic trend of a country (www.economywatch.com). The performance of a stock market of an economy is of interest to various parties including investors, capital markets, the stock exchange and government among others. Stock Market Performance is affected by a wide array of factors key among them is the activities of government and the general performance of the economy. Economic activities do affect the performance of stock markets. Other factors that affect the stock markets performance include, availability of other investments assets, change in composition of investors, and markets sentiments among other factors (Mendelson and Robbins, 1976). Siegel (1998) and Riley (1980) have provided consistent evidence that the immediate market reaction to the election of a Republican President is positive (increase in stock index) in the United State of America. However, the party effect in which popular wisdom asserts that the stock market prefers 9. 2 Republican President to Democrats turns out to be false. Indeed the evidence supports the opposite proposition in that stock markets in the U.S. perform better under Republicans (Jones, 2002). The idea of establishing a Stock Exchange in Ghana laid on the drawing board for almost two decades prior to its implementation. In February 1989, the issue of establishing a stock exchange moved a higher gear when a 10-member National Committee, under the Chairmanship of the then Governor of the Bank of Ghana, was set up by the Government. The work of the committee was to consolidate all previous work connected to the Stock Exchange project and to fashion out modalities towards the actual establishment of the Exchange. As a result of the work of the committee, the Ghana Stock Exchange (GSE) was established in July 1989 as a private company limited by guarantee under the Companies Code of 1963. It was given recognition as an authorized Stock Exchange under the Stock Exchange Act of 1971 (Act 384) in October 1990. The Council of the Exchange was inaugurated on November 12, 1990 and trading commenced on its floor the same day. The Exchange changed its status to a public company limited by guarantee in April 1994. It currently has around 30 listed companies and 2 corporate bonds. GSE uses an electronic trading platform called the GSE Automated Trading System (GATS) Securities traded include shares (preference or equities), debt in the form of corporate bonds (and notes), municipal bonds (and notes), government bonds (and notes) and close-end unit trusts and mutual funds (www.gse.com.gh) Ghanas first general elections were held in 1951 and 1954 respectively under the supervision of the colonial government prior to independence on March 6, 1957. After independence, Ghana has had four republics (i.e. from 1960 1992) due to the overthrow of governments and constitutions by coup dtats, with only the fourth republic (1992 to date) having five 10. 3 successful general elections. The general elections were held in 1992, 1996, 2000, 2004 and 2008 under a multi-political party system (www.ghana.gov.gh). 1.1 Problem Statement Several studies have been done establishing the relationship between the stock market performance and political activities in specific countries. Most of these studies were carried out in developed stock markets. However, not much research is done on emerging stock markets in developing countries. Studies on the effect of political activities on the performance of emerging stock markets are very important as more investors participate in these markets. The investors in emerging markets are local and the numbers of foreign investors continue to increase overtime. Developed economies such as the U.S. operate in different social, economic and political environments than those found in emerging markets. The performance of the stock market following general elections and its relationships with market performance has been documented in the United Kingdom and the United States of America (Stovall, 1992; Hudson et.al, 1998). This study seeks to find out the performance of Ghana Stock Exchange (GSE) before and after general elections such that investor (both local and foreign) would be informed on the time to invest. 1.2 Objectives To study the stock market performance before and after general elections in Ghana 11. 4 CHAPTER 2 2.0 LITERATURE REVIEW 2.1 The Stock Market A stock market is a public entity (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company and/or government stock (shares) and derivatives at an agreed price. These stock (shares) and derivatives are securities listed on a stock exchange as well as those only traded privately. The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The largest stock market in the United States, by market capitalization, is the New York Stock Exchange (NYSE). In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse, and the Deutsche Brse (Frankfurt Stock Exchange). In Africa, examples include Nigerian Stock Exchange, JSE Limited, etc. Asian examples include the Singapore Exchange, the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV (en.wikipedia.org). Market participants include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares. Some studies have suggested that institutional investors and corporations trading in their own shares generally receive higher risk-adjusted returns than retail investors (De Cesari et al., 2010). 12. 5 2.2 Trading of Stock Market Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order of buying or selling. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of stock exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders. Actual trades are based on an auction market model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any ask price or bid price for the stock, respectively.) When the bid and ask prices match, a sale takes place, on a first-come-first-served basis if there are multiple bidders or askers at a given price. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery. The New York Stock Exchange (NYSE) is a physical exchange, also referred to as a listed exchange only stocks listed with the exchange may be traded, with a hybrid market for placing 13. 6 orders both electronically and manually on the trading floor. Orders executed on the trading floor enter by way of exchange members and flow down to a floor broker, who goes to the floor trading post specialist for that stock to trade the order. The specialist's job is to match buy and sell orders using open outcry. If a spread exists, no trade immediately takes placein this case the specialist should use his/her own resources (money or stock) to close the difference after his/her judged time. Once a trade has been made the details are reported on the "tape" and sent back to the brokerage firm, which then notifies the investor who placed the order. Although there is a significant amount of human contact in this process, computers play an important role, especially for so-called "program trading" (en.wikipedia.org). The NASDAQ is a virtual listed exchange, where all of the trading is done over a computer network. The process is similar to the New York Stock Exchange. However, buyers and sellers are electronically matched. One or more NASDAQ market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock (www.Investopedia.com). The Paris Bourse, now part of Euronext, is an order-driven, electronic stock exchange. It was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry exchange. Stockbrokers met on the trading floor or the Palais Brongniart. In 1986, the CATS trading system was introduced, and the order matching process was fully automated. From time to time, active trading (especially in large blocks of securities) have moved away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and Credit Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems. That share probably will increase to 18 percent by 2010 as more 14. 7 investment banks bypass the NYSE and NASDAQ and pair buyers and sellers of securities themselves, according to data compiled by Boston-based Aite Group LLC, a brokerage-industry consultant (Ortega, 2006). Now that computers have eliminated the need for trading floors like the Big Board's, the balance of power in equity markets is shifting. By bringing more orders in-house, where clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees and capture a bigger share of the $11 billion a year that institutional investors pay in trading commissions (en.wikipedia.org) 2.3 History of Stock Market In 12th century France the courretiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. A common misbelief is that in late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurze, and in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in Antwerp where those gatherings occurred; the Van der Beurze had Antwerp, as most of the merchants of that period, as their primary place for trading. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam (en.wikipidia.org). 15. 8 In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. Italian companies were also the first to issue shares. Companies in England and the Low Countries followed in the 16th century. The Dutch East India Company (founded in 1602) was the first joint-stock company to get a fixed capital stock and as a result, continuous trade in company stock emerged on the Amsterdam Exchange. Soon thereafter, a lively trade in various derivatives, among which options and repos, emerged on the Amsterdam market. Dutch traders also pioneered short selling - a practice which was banned by the Dutch authorities as early as 1610 (en.wikipidia.org) There are now stock markets in virtually every developed and most developing economies, with the world's largest markets being in the United States, United Kingdom, Japan, India, China, Canada, Germany (Frankfurt Stock Exchange), France, South Korea and the Netherlands (www.world-exchanges.org) . 16. 9 2.4 The role of the Stock Market Emerging markets have made tremendous progress in the last decade. Stock markets are no longer seen as legalized gambling but their important role has been well documented. Stock market development and long-run economic growth are closely linked together. Markets serve many different roles that are particularly important in emerging economies (Aggarwal, 1999). That is the reason why governments, industries and even central banks of countries keep a close watch on the happenings of the stock market (www.sharetipsinfo.com). A major role that the stock markets have played, and continues to play in many economies is that they promote a culture of or saving (www.nse.co.ke). Without a stock market, it would be costly for a firm to access multiple small investors to fund its projects. From the viewpoint of investors, they would, without pooling, have to buy or sell entire firms and would then be unable to diversify risk. Efficient stock markets may increase competition in the capital market, and they may also boost the volume of savings by providing investors with new alternative savings instruments that may better fulfill their liquidity, yield or/and risk requirements, or their preferences (Marone, 2003). Lee (1998) cited that an efficient stock market sector will have the expertise, the institution and the means to prioritize access to capital by competing users so that an economy manages to realize maximum output at least cost. This he said is what economists refer to as the optimum production level. If an economy does not have efficient financial markets there is always the risk that scarce capital could be channeled to non-productive investments as opposed to productive ones, leading to wastage of resources and economic decline. 17. 10 The existence of stock markets promotes higher standards of accounting, resource management and transparency in the management of business. This is because financial markets encourage the separation of owners capital from managers of capital. This separation is important because people who have money may not have the best business ideas and people who have the best ideas may not have money to invest. The Stock Exchange thus becomes an important link. A private company in need of capital for expansion can therefore raise funds through the stock market. This arrangement benefits both those with excess funds and the company that raises funds because the manager of capital, who is the entrepreneur, is able to access capital to turn his idea into a reality, while the owners of capital, who are the shareholders, receive a return on their investment (www.nse.co.ke). Stock markets provide investors with an efficient mechanism to liquidate their investments. In an environment where liquidity shocks are not contractible, stock markets help individuals to cope with liquidity risk through allowing them to respond liquidity shocks by selling their shares to other investors (Marone, 2003). The very fact that investors are certain of the possibility of selling out what they hold as and when they want, is a major incentive for investment as it guarantees mobility of capital in the purchase of assets .The interactions of buyers and sellers in a stock market determine the price of traded assets; or equivalently the required return that investors demand and is this feature of stock market that signals how funds in the economy should be allocated among financial assets (Fabozzi and Modigliani ,1995). Reduction of the search and information costs of transaction at the stock market is essential to facilitating growth of the market. Search costs presents explicit costs such as money spent to 18. 11 advertise, the desire to sell or purchase a financial asset, and implicit costs such as the value of the time spent in locating counter party. The presence of an organized stock market reduces search and information costs (Fabozzi and Modigliani, 1995). This is achieved through the generation and dissemination of firm-specific information that efficient stock prices reveal (Marone, 2003). Avenues for public floatation of private companies and government owned entities which in turn allow greater growth in case of the supply of assets available for long term investment are available at the stock market. This also leads to wealth redistribution from state and private companies to the investing public since they can share in the returns of the privatized entities. The establishment of an efficient stock market is therefore indispensable for any economy that is keen on using scarce capital resources to achieve economic growth. (www.nse.co.ke). 2.5 Indicators of Stock Market Performance All over the world, stocks prices do not move together in a precise manner. This is due to the fact that the economic systems in which stock markets are sited do not have the same environments in terms of government monetary policies, political stability, taxation and industrial growth among other factors. Stock markets may experience a general increase in price level referred to as a bull market or general decrease in price level referred to as bear market. Stagnant prices or sudden big price movements downward is referred to as stock market crash. The main measures of stock market performance include; stock market indexing, market capitalization and stock turnover. As cited by Simiyu (1992), stock market indexing is one of the 19. 12 most widely used measures of stock performance. Investors hold portfolios of many assets but it is cumbersome to follow progress on each security in the portfolio. Thus it is prudent to observe the entire market under the notion that their portfolio moved in the same direction as the aggregate market. The market index is used to observe total returns for an aggregate market and these computed returns are to judge performance of individual portfolios. The assumption is that randomly selecting a large number of stocks from the total market should enable the investor to generate a rate of return comparable to the market. According to Otuke (2006), market capitalization is another measure of stock market performance .This is used to measure market movements by measuring the total value of stock in a particular stock market by aggregating the market value of the quoted stocks. Changes in market capitalization occur due to fluctuations in share prices or issuance of new share prices or issuance of new shares and bonus issues. This implies that high activity at the stock market may signal more investments in the stock markets. Market turnover indicates inflows and outflows in the stock market and is based on the actively traded shares. A change occurs due to the actively traded shares and to fluctuations in share prices or number of shares traded in a given day. Performance of the economy, monetary policies, fiscal policies, inflation, availability of substitute investments, change of investor preferences and market sentiments are also among the determinants of stock market performance. Government activities and general performance of the economy influence stock market activity and the performance of stock markets. Monetary and fiscal measures enacted by various agencies of national governments influence the aggregate economies of those countries. The resulting economic conditions influence all industries and companies in an economy positively or negatively which in turn affect the performance of stock markets (Reilly 1997). 20. 13 Stiglitz (1993) commented that fiscal policy incentives such as tax cuts can encourage spending, where as additional taxes on income, petroleum products, cigarettes, and alcoholic beverages discourage spending. Increase or decrease in government spending also influence the general economic activity by triggering multiplier effect. However, Mendelson (1976) was of the view that, monetary policy has implications to the economy. A restrictive monetary policy reduces the supply of funds for working capital and expansion of business. Alternatively a restrictive monetary policy may lead to increased interests rates thus increasing the cost of capital which makes it more expensive for individuals to finance home mortgage and purchase of durable goods. Stock markets performance is also affected by inflation. As noted by Reilly (1997), inflation causes differences between real and nominal interests rates thus changing the spending and saving behavior of consumers and corporations. Unexpected changes in the rate of inflation make it difficult for firms to plan, which inhibits growth and innovations .Beyond the impact of the domestic economy, differential inflation and interest rate influence the trade balance between countries and exchange rate of currencies. Mendelson (1976) also noted that events such as war, political upheavals within or outside a country, or international monetary devaluation produce changes in the business environment that lead to uncertainties and earnings expectations of investors therefore increasing the risk premium of investors. Market sentiment also referred to as the psychology of market participants affect stock market performance. Market sentiment is often subjective, biased, and obstinate .The uncertain mass reaction of individuals to developments affecting the stock market is one of the factors that handicaps stock market forecasting .A mild stock market flurry caused by a spurt in business activity may generate a wave of buying enthusiasm that raises prices to blossom levels. As an indication to this 21. 14 tendency, from January 1967 through December 1968 the American Stock Exchange index more than doubled in the face of a business activity advance of about ten percent. The stay-eyed optimism of buyers who believe that prices that increase indefinitely may produce substantial advances that are not justified by underlying financial considerations. On the other hand, pervasive investor gloom, generated by political or economic uncertainties, could drive prices to levels that appear equally unjustified by standard financial tests (Mendelson, 1976). The occasionally irrational attitude of buyers was noted by John Maynard Keynes, who observes that professional investors are concerned not with what an investment is really worth to a man who buys it for keeps , but with what the market will value it at ,under the influence of mass psychology ,three months or a year later. Psychological factors motivating individuals to buy and sell stocks are difficult to evaluate but may sometimes present opportunities for substantial profits and therefore cannot be ignored by more adventuresome investors (Mendelson 1976). This irrational behaviour of investors related activities before or after an election could also affect the stock market performance. 2.6 Consequences of General Elections on Performance of Stock Market Academia and investors are constantly examining markets to discover anomalies among returns that deviate from their assumed fundamental underpinnings to revel and give reason to what may appear as an arbitrage opportunity. One such anomaly which has received particular interest in the US and has growing international attention is the existence of political cycles, and presents both interesting and important findings for both academia and investors alike. There are two political effects studied within finance literature; the political business cycle and the election 22. 15 effect. The political business cycle examines the returns on stock markets during the term of a government and is often referred to as the presidential cycle in the US, where the election effect examines stock returns around the election date itself. Whether or not the effect is founded in rational or irrational choices made by market participants is still hotly contested, but the general consensus remains that the effect is very real, although it may differ between economies. McCallum (1978) studied previous US administrations and found evidence that stocks showed consistent return patterns, dependent upon which year of their four terms they were serving, but did not believe this could be manipulated by the controlling power. However, Nordhaus (1975) had suggested that governments can affect the state of their economy by influencing the level of unemployment, and may do so strategically in order to gain re-election. This behaviour is seen to be negatively associated with stock returns as it is inflationary, and therefore it is not unreasonable to assume individuals may wish to diversify their investments among a number of different instruments dependent upon the stage of the election cycle (Anderson et al, 2008: Nordhaus, 1975). Anderson et al (2008) found stocks and bonds to be more adversely affected than property in periods of higher inflation, and therefore it may be advantageous for individuals to hedge their investments dependent upon the level of unemployment. Booth and Booth (2003) further discovered that returns differed depending upon the political party which was in power. Their study, as are the majority of studies performed in this area, focused on the US, and discovered fixed income securities had significantly higher returns when 23. 16 the ruling party was Republican, where small stock excess returns were higher under Democratic administrations. 2.6.1 Observations from US Studies Higher stock returns under a Democratic president in the US is suggested by Cahan et al (2005) to be a surprising finding, and one that goes against conventional wisdom. As Nordhaus (1975) explained, one would assume a right wing government would be better for business, due to their conservative approach to managing economic cycles. Cahan et al (2005) refer to this apparent contradiction as the presidential puzzle, where real returns, particularly for small stock business, performed better under Democratic leadership. Hensel and Ziemba (1995) suggested this may be due to Democratic governments enacting policies aimed at benefiting small business; however the differences they found between the returns of the two categories of stock were larger than one would expect. Booth and Booth (2003) found the Presidential Puzzle to only benefit small cap stocks, with no significant difference between the returns of large cap stocks during the terms of both Democratic and Republican presidents. However, Santa-Clara and Valkanov (2003) find that large cap stocks do perform better under Democratic presidents, although their performance is not as great as that of their smaller counterparts. They discovered that large cap stocks tended to perform an average of 7% better, where small cap stocks produced returns of around 22%. Anderson et al (2008) does point out the US political system is much more complex than those in other parts of the world, as the ruling party may not be able to pass major laws or reforms if they do not control the senate. 24. 17 However, this has been given little consideration by many studies and thus the decoding of the presidential puzzle could benefit from some further investigation. Studies conducted in the US have consistently shown stock returns exhibit a presidential cycle during the four years of a presidents term regardless of whether they are a Democratic or Republican (Allvine & ONeil, 1980: Booth & Booth 2003: Forester & Schmitz, 1997: Jensen, Mercer and Johnson, 1996: Nordhaus, 1975: Stovall, 1992). This presidential cycle, where stock returns perform significantly better during the last two years of a presidents term than they do during the first two years, has been noted by numerous studies. Jensen, et al (1996) found a general consensus among those in the financial community that this is in part due to the re-election hopes of the incumbent party, who tend to stimulate the economy through the use of both monetary and fiscal policy. However, as Worthington (2006) points out, this pork-barrelling by politicians to gain re-election has predominantly been studied in the US and therefore any such recommendations may not be applicable to investors in foreign markets. Forester and Schmitz (1997) studied the effect US election cycles have on international stock returns and found some interesting observations around international stock returns. Their study showed that stock returns from eighteen Organizations for Economic Co-operation Development (OECD) countries between the years of 1957 and 1996 appeared to follow a pattern consistent with the US presidential cycle, thus indicating the effect of the political cycle may affect more than just the US economy. In their study of eighteen countries they were able to conclude that US presidential cycles are important when determining international stock market risk premiums. 25. 18 2.6.2 Observations from Australasian studies Although the bulk of research into political cycles focuses its attention on the US, a number of recent articles have surfaced examining the role governments play in the returns experienced in their countrys capital markets in Australasian countries. Cahan et al (2005) contrasts the findings of US studies to their own study of the New Zealand market and found stock returns to be higher under the right-of-centre National party. This is contrary to findings in the US where stock returns did vary under different governments; however stocks perform better under their left-of-centre Democratic party. This finding is not exclusive to just Cahan et al (2005), but was also discovered by Worthington (2006), and Anderson et al (2008). Nordhaus (1975) and Anderson et al (2008) argue that markets perform better under a right wing government. This is true in the cases of New Zealand and Australia, and is believed to be due to left wing governments introducing policies that boost employment, of which inflation is a natural consequence. Higher levels of employment lead to higher levels of inflation and is reflected in significantly lower returns (Nordhaus, 1975). Under a National government in New Zealand, and their equivalent in Australia, the Liberal party, returns between 1931 and 2006 were 10.18% and 11.95% per annum respectively, where their Labour counterparts only managed to produce 6.60% and 4.49% per annum (Cahan et al, 2005). This finding reaffirms those of Anderson et al (2008) and Worthington (2006) that stock performance differs among political parties, and therefore one may wish to base their investment decisions accordingly. 26. 19 2.6.3 Observations from African studies the Nairobi Case Study Kithinji (2008) observed from a study that political activities and expectations influenced the NSE performance around the election period in the short-term. The study also revealed that the first two years after the general elections the NSE performed better than the last two years before the next general elections. The poor performance before the election could be attributed to investor anxiety and panic associated with pre-election period. The immediate effect a new president can have on the stock market is limited. Long-term, sustained growth of your portfolio may result only from a fundamental strengthening of the economy. Perhaps the greatest weapon the new president has to stabilize the markets, at least in the short term, is his access to a national audience eager for reassurance. The first and foremost thing he has is the ability to promote confidence, and thats an absolutely essential ingredient of stabilizing the economy and making people more hopeful about the country (www.msnbc.msn.com). 2.7 History and Structure of the Ghana Stock Market The idea of establishing a stock exchange in Ghana dates back to 1968 and subsequent promulgation of the Stock Market Act of 1971, which laid the foundation for the establishment of the Accra Stock Market Limited (ASML) in 1971. Unfavourable macroeconomic environment, political instability and lack of government support undermined the takeoff of the ASML. In spite of these early setbacks, two stock brokerage firms, the National Trust Holding 27. 20 Company Ltd (NTHC) and the National Stockbrokers Ltd (now Merban Stockbrokers), prior to the establishment of the Ghana Stock Exchange in November 1990, did over-the-counter (OTC) trading in shares of some foreign-owned companies. Under the supervision of the IMF and World Bank, Ghana underwent structural reforms in 1983 to remove distortions in the economy together with other financial reforms including but not limited to deregulation of interest rates, removal of credit controls, and floating of exchange rates. After the financial liberalization and the divestiture of a host of state owned enterprise the need for stock market in Ghana became unavoidable. The Ghana Stock Exchange was incorporated in July 1989 as a private company under the Ghana companies code, 1963 (Act 179). However, the status of the company was changed to a public company under the companys Code in April 1994.The exchange was given recognition as an authorized stock exchange under the Stock Exchange Act of 1971 and commenced trading on the floor of the exchange on November 12, 1990. The number of listed companies increased to 13 in 1991; 19 in 1995 and to 32 in 2007 (GSE, 2007). The Ghana stock market was voted sixth and best performing emerging market in 1993 and 1994 respectively. The GSE capital appreciated by 116% in 1993 and gained 124.3% in its index level in 1994 (GSE, March 1995). This followed the listing of Ashanti Goldfields Company (AGC) now AngloGold Ashanti. The listing of AGC changed the face of the GSE and attracted many foreign investors. The markets abysmal 6.3% growth rate in 1995 was partly attributed to high inflation and interest rate. The increase in the number of listings has also reflected in market capitalization which increased from a little over US$ 2.6 million 2004 to about $11.5billion. At the same time, the annual turnover ratio remained just about 3.2% in 2004, from an all-time high of 6.5% in 1998. The GSE holds trading every working day. All trading are agreed on the floor of exchange except 28. 21 Ashanti Gold shares which can be traded both through the GSE and over-the-counter after GSE trading hours. All out of hours trades are subsequently reported to the GSE at the next trading session. The main indices are the GSE All Share Index and the Databank Stock Index (DSI). Three new indices comprising the SAS Index (SASI), SAS Manufacturing Index (SAS-MI) and the SAS Financial Index (SAS-FI) have also been published by Strategic African Securities Limited. GSE currently has around 30 listed companies and 2 corporate bonds. It uses an electronic trading platform called the GSE Automated Trading System (GATS). Securities traded include shares (preference or equities), debt in the form of corporate bonds (and notes), municipal bonds (and notes), government bonds (and notes) and close-end unit trusts and mutual funds (www.gse.com.gh). Settlement of trades is done electronically using a web based application. Settlement occurs three business days (T+3) after the trade date. The System allows for mutual settlement of trade on T+0 or T+1 basis. On settlement dates shares are moved automatically to clients accounts in the depository system and the brokers settlement account debited (www.gse.com.gh). The GSE has set up a wholly-owned subsidiary called GSE Securities Depository Company Limited. The key objective is to offer depository services to complement the Exchange's automated trading, clearing and settlement systems. As a result investors on the Exchange must open securities account with the Depository through their Stockbrokers. Under the automated 29. 22 trading and settlement system, an investor cannot sell nor buy securities on the market if he or she has no securities account (www.gse.com.gh). 2.8 Background of General Elections in Ghana Ghanas first general elections were held in 1951 and 1954 respectively under the supervision of the colonial government prior to independence on March 6, 1957. After independence, Ghana has had four republics (i.e. from 1960 1992) due to the overthrow of governments and constitutions by coup dtats, with only the fourth republic (1992 to date) having five successful general elections. The general elections were held in 1992, 1996, 2000, 2004 and 2008 under a multi-political party system. (www.ghana.gov.gh) First Republic On 1st July 1960 Ghana became a Republic. In 1966, the Ghana Armed Forces and Police led by Lt. Col. E. K. Kotoka and Maj. A. A. Afrifa overthrew Nkrumahs administration and the first Republican Constitution of Ghana. A National Liberation Council (NLC) took office, headed by a retired army officer, General J. A. Ankrah. Lt. General A. A. Afrifa, in 1969, succeeded General Ankrah as the Chairman of the NLC. Second Republic Dr. Kofi Abrefa Busias Progress Party (PP) took over from the NLC by winning the 1969 elections. The Progress Party Administration with Dr. Busia as Prime Minister and former Chief Justice Edward Akuffo Addo, one of the Big Six as President, was overthrown by a military coup in 1972 led by the then Col. I. K. Acheampong. 30. 23 He formed and chaired a military junta, the National Redemption Council (NRC). General I. K. Acheampong became the Head of State and Chairman of the NRC. The name NRC was later changed to the Supreme Military Council (SMC). General F.W.K. Akuffo replaced General Acheampong in a palace coup in July 1978. Third Republic The SMC II was overthrown on 4th June 1979 through a mutiny by some officers and men of the Ghana Armed Forces who established an Armed Forces Revolutionary Council (AFRC) with Flt. Lt. Jerry John Rawlings as Chairman and Head of State. The AFRC was in office for only three months. On 24th September 1979, the AFRC handed over power to Dr. Hilla Limann leader of the Peoples National Party (PNP) which won the 1979 elections. The Limann administration and the Third Republican Constitution of Ghana were overthrown in yet another military coup in Ghanas post-Independence history in 1981. The coup was led by Flt. Lt. Rawlings who again became Head of State and Chairman of a Provisional National Defence Council, (PNDC) which he established. The PNDC ruled Ghana from 31st December 1981 to 7th January 1993. A combination of internal and international pressure factors led to a return to constitutional multi-party democratic rule in 1993. Fourth Republic In the Presidential election held on November 3rd 1992 Flt. Lt. Rawlings contested on the ticket of the National Democratic Congress (NDC) and beat eminent African historian and human rights activist Prof. Albert Adu Boahen, the flag bearer of the New Patriotic Party, into second place. In the Parliamentary elections the Progressive Alliance, made up of the National 31. 24 Democratic Congress, the National Convention Party and the Eagle Party won 198 seats out of the total of 200. Four other parties, the NPP, PNC, NIP and PHP boycotted the parliamentary elections on account of dissatisfaction with the electoral arrangements. The Fourth Republic was inaugurated on January 7th 1993 with the swearing in of H. E. Flt. Lt. Rawlings as President and his running mate, Mr. Kow Nkensen Arkaah as Vice President. On December 7th 1996, Flt. Lt. Rawlings was re-elected for a second four-year term as a President, with Prof. John Evans Atta Mills as his running mate. In the 1996 elections, President Rawlings beat Mr. J. A. Kufuor of the NPP to second place. In the Parliamentary elections, the NDC won 133 seats, the NPP 61 seats, PCP 5 seats and PNC 1 seat. In the third Presidential and Parliamentary elections of the Republic, held on December 7th 2000, the New Patriotic Party (NPP) won 100 seats while the National Democratic Party (NDC) obtained 92 seats. The Peoples National Convention (PNC) obtained 3 seats, independent candidates 4 seats and Convention Peoples Party (CPP) 1 seat. In the Presidential elections, none of the seven candidates had 50% plus one vote as required under the Constitution. Thus in the Presidential run-off on December 28th, 2000, between the two candidates with the highest votes, Mr. John Agyekum Kufuor (NPP) emerged the winner with 56.90% of the valid votes cast while Professor John Evans Atta-Mills of the (NDC) had 43.10%. In December 2004 President John Agyekum Kufuor won a second and final four-year term as President of Ghana. 32. 25 The National Democratic Congress (NDC) led by the late Professor John Evans Atta Mills won the Forth Presidential and Parliamentary elections of the Republic. He was inaugurated on 7 January 2009, having defeated the ruling party candidate Nana Akufo-Addo by 50.23%49.77% in the 2008 election. None of the seven candidates in the 2008 Presidential elections did have 50% plus one vote as required by the Constitution. The Presidential run-off which was a straight contest between Professor John Evans Atta Mills of the NDC and Nana Akufo-Addo of the NPP held on December 28th 2008 could not also produce a clear winner until Tain Constituency decided and Professor Mills emerged as the President-elect. 33. 26 CHAPTER 3 3.0 RESEARCH METHODOLOGY 3.1 STUDY DESIGN This study was carried out by analyzing the stock market performance before and after general elections in Ghana. The study focused on GSE performance for the period between 1991 and 2009. This is due to the fact that it is during this period that Ghana has had successful competitive presidential and parliamentary general elections as compared to other election years. 3.2 DATA COLLECTION Secondary data used for this study was bought from GSE. The data obtained covered the period between 31st January 1991 and 30th November 2009. General elections in Ghana are held in four years with the first successful election held in 1992. Thus 7th December 1992, 7th December 1996, 7th December 2000, 7th December 2004 and 7th December 2008 were the event date. This study focused on GSE performance as measured using the GSE All-share index on a monthly basis for the period under study. 3.3 DATA ANALYSIS Generally stock market index movement is used to assess the performance of the stock market and also gives an indication of the economic activities in the country. When the stock market index moves upwards on a continuous basis the market is referred to as bullish and when the index moves downwards the market is referred to as bearish. At times the market moves within a very narrow range and it is neither bullish nor bearish. The stock market index movement before and after the general election was followed to determine the movement. This was used to determine the performance of the Ghana Stock Exchange (GSE) before and after each general election. Tests of 34. 27 significance were undertaken to determine whether there were any significant differences in performance before and after the general elections. The main data variable for this study was the GSE index (GSE All-share index). The GSE All- share index is used to measure the performance of the GSE from each trading day. An increase in the index indicated that the GSE performance is on an upward trend with prices of most shares increasing. Primarily the GSE All-share index was analyzed to capture trends of performance of the market for the study period. The percentage changes (increase or decrease) in the GSE index before and after elections were calculated and a comparison done from one election period to another. With the aid of SPSS software, t-test for differences in means was used to compare significance of differences for the comparative study periods. 35. 28 CHAPTER 4 4.0 DATA ANALYSIS AND RESULTS This chapter presents results of the performance of GSE All-share index for the periods before and after the general elections of 1992, 1996, 2000, 2004 and 2008. The results have been obtained from an analysis of monthly GSE All-share index during the study periods. Analysis was essentially focused on obtaining the t tests for differences in means of the period before and after the general election, that is, differences in two means. Significance tests were used to determine the selection of the appropriate hypothesis. The SPSS software version 16 was used in the analysis of data for this study with the assumption that samples are randomly and independently drawn from normally distributed populations. It also assumes that the population variances are equal. 4.1 HYPOTHESIS TESTS The hypothesis tests to aid in ruling out chance as plausible explanation for the results are as follows: Null hypothesis: There is no difference in the performance of the stock market for the period before and after a General Election. Alternative hypothesis: There is a difference in the performance of the stock market for the period before and after a General Election. 36. 29 That is; H0: MpbE - MpaE = 0 H1: MpbE - MpaE 0 Where; MpbE is Stock market performance before elections MpaE is Stock market performance after elections 4.2 STATISTICAL ANALYSIS 4.2.1 Analysis for the period 1991/1992 Table 1: Statistics for 1991/1992 Indexes Year Means (Average GSE index) Standard Deviation T-value P-value 95% Confidence Interval of the difference 1991 61.7450 3.04 -3.77 0.001 (-8.35, -2.43) 1992 67.1350 3.91 Table 1 above shows the mean GSE All-share index for the year 1991 which was a pre-election year and that of the election year, 1992. From the table, the p-value is less than the alpha level of 0.05 (at the 95% significance level). This means that the null hypothesis can be rejected on the basis of the available data. Thus, there was significant variation in the performance of the stock market in the year of the election, that is, 1992, compared to the year prior to the election. The mean index difference between 1991 and 1992 was 5.39 representing about 8.73% increase. This was quite a promising performance of a young market like GSE in its trading at an early stage. 37. 30 Again, the volatility for the period under deliberation differed slightly (about 0.9%). With 1991 having a relative dispersion of 4.92% and 5.82% for 1992, indicating a stable market with a similar risk-return profile of stocks in the two periods. Thus, it can be concluded that GSE market exhibited a significant performance in the election year. 4.2.2 Analysis for the period 1995/1996 Table 2: Statistics for 1995/1996 Indexes Year Means (Average GSE index) Standard Deviation T-value P-value 95% Confidence Interval of the difference 1995 309.56 8.00 -6.79 0.000 (-58.67, -31.21) 1996 354.50 21.50 The above table (Table 2) depicts a comparison of the performance of GSE market for the 1995/1996 period. The mean performances of the market, as measured by the index, for the two years differ by 44.94 representing 14.51% change in market performance from 1995 to 1996. In 1995, there was a relatively less volatile market compared to 1996 (2.58% compared to 6.06%). Again, the p-value for the test of significance of differences between 1995 and 1996 is 0.000 which is less than the alpha level of 0.05 for the 95% significance level. Hence the null hypothesis is rejected and a conclusion drawn that there is a significant difference in the performance of the market in the two years. . 38. 31 4.2.3 Analysis for the period 1999/2000 Table 3 below shows a summary of market performance statistics for the 1999/2000 period. From the data, the mean performance for pre-election year 1999 was slightly less than that of year 2000 (election year). The stocks dispersion was, however, somewhat similar; with 5.74% relative dispersion for year 1999 and that of year 2000 being 5.46%. This indicates that the general market volatility was more or less even for the two years period. However, the test for significance at 95% level resulted in a p-value of 0.632 which is greater than the alpha level of 0.05. Thus, the 1999/2000 performance result is not statistically significant and therefore would fail to reject the null hypothesis. Table 3: Statistics for 1999/2000 Indexes Year Means (Average GSE index) Standard Deviation T-value P-value 95% Confidence Interval of the difference 1999 804.3 46.2 -0.48 0.632 (-47.3, 29.40) 2000 813.3 44.4 4.2.4 Analysis for the period 2003/2004 From the tabulated statistics below (that is, table 4) for 2003/2004 market performance period, the election year (2004) recorded an index mean that differed from the pre-election year (2003) by 4087 representing about 185% increases. Also the relative dispersions of the market performance for the two years period (2003 and 2004) were 29.76% and 20.14% respectively. 39. 32 The p-value for the period was significant (0.000 which is less than 0.05 at 95% level of significance). Consequently, the null hypothesis is rejected and concluded that there is significant performance change in the stock market for the 2003/2004 period. Table 4: Statistics for 2003/2004 Indexes Year Means (Average GSE index) Standard Deviation T-value P-value 95% Confidence Interval of the difference 2003 2207 657 -9.91 0.000 (-4942, -3232) 2004 6294 1268 4.2.5 Analysis for the period 2007/2008 Table 5: Statistics for 2007/2008 Indexes Year Means (Average GSE index) Standard Deviation T-value P-value 95% Confidence Interval of the difference 2007 5452 437 -8.16 0.000 (-4999, -2974) 2008 9439 1634 The table above (table 5) gives the summary statistics for the 2007/2008 period. The mean index for 2007 which was a pre-election year is less than that of 2008- the election year. The p-value is less than the alpha value of 0.05. This means that the null hypothesis can be rejected on the basis of the available data. Hence, it is concluded that there was significant difference in the stock market performance in the year of election (2008) paralleled to 2007 (the year before election). 40. 33 The market was relatively less volatile in 2007 as compared to 2008 (8.01% compared to 17.31%). Thus, it can be concluded that the stock market exhibited a more significant volatility in the election year than the preceding year. 4.3 Years for Control This section deals with the performance of the GSE market of years used as control. The aim is to find out whether difference in performance was restricted only to the election event or it was general throughout the period of study. For this purpose, four sets of non-election years (1993/1994, 1997/1998, 2001/2002 and 2005/2006) were chosen. The same analysis for market performance was done on these years and their respective statistics with explanations are as follows. 4.3.1 1993/1994 Control Period Market Performance Considering the 1993/1994 non-election period in table 6 below, there is a substantial difference in the mean index of the two years (about 171.2 representing 179% increase in 1994). Also there is a variation in the relative dispersion. With 1994 recording 24.43% and that of 1993 being 18.49%. This implies that 1994 stock volatility was higher than in 1993. The p-statistic recorded a zero (0) value with respect to the test of significant difference in market performance for the two years. Hence, the null hypothesis is rejected and it is concluded that there was significant difference in GSE performance for the two years. 41. 34 Table 6: Statistics for 1993/1994 Indexes Year Means (Average GSE index) Standard Deviation T-value P-value 95% Confidence Interval of the difference 1993 95.7 17.7 -8.77 0.000 (-211.6, -130.7) 1994 266.9 65.2 4.3.2 1997/1998 Control Period Market Performance Table 7 below shows the next market performance for 1997/1998 control period. It can be seen that, there is a high mean difference of about 111.57% between the two years. In addition, 1998 recorded a relatively higher volatility of 21.09% compared to 13.26% of 1997. The p-value indicated a significant difference in the performance of the stock market in the two years. The null hypothesis is thus rejected. Table 7: Statistics for 1997/1998 Indexes Year Means (Average GSE index) Standard Deviation T-value P-value 95% Confidence Interval of the difference 1997 407.9 54.1 -8.28 0.000 (-568.5, -340.8) 1998 863 182 42. 35 4.3.3 2001/2002 Control Period Market Performance The 2001/2002 control period market performance, as shown in table 8 below, gave a change in mean index of about 27.7%. Again stock volatility for the two years (2001 and 2002) were at a relative dispersion of 4.12% and 13.78% respectively. The p-value depicted that there was a significant difference in the market performance for the two years. Table 8: Statistics for 2001/02 Indexes Year Means (Average GSE index) Standard Deviation T-value P-value 95% Confidence Interval of the difference 2001 920.1 37.9 -5.31 0.000 (-354.1, -155.1) 2002 1175 162 4.3.4 2005/2006 Control Period Market Performance Table 9 below compares 2005/2006 control period market performance. It revealed that there was a higher stock volatility in 2005 at a relative dispersion of 14.6% compared to 2.13% in 2006. This indicated that volatility was roughly seven times higher in 2005 relative to 2006. Also, there was a fall of about 14.41% in the mean index of GSE during the period (2005/2006). However, the test of significance revealed that the average market performance for the two years was significantly different. 43. 36 Table 9: Statistics for 2005/2006 Indexes Year Means (Average GSE index) Standard Deviation T-value P-value 95% Confidence Interval of the difference 2005 5688 832 3.39 0.003 (318, 1322) 2006 4868 104 4.3.5 Deduction from the Control Periods The results of the various sets of control periods depict regular patterns of significant differences in the performance of the market for each of the periods under comparison. Hence GSE markets performance was significantly different from year to year and was not necessarily dependent on the election event. 4.4 Short Term Performance of the Market Before and After Elections Analyses data relating to the performance of the market for the last quarter preceding the 1992 elections revealed that the market index dropped by 8.0% but recovered to increases by 19.5% after the election, that is, by the end of the first quarter of 1993. The market index of 1996 election year also declined by 3.5% in the last quarter before the election in December 7, but recovered slightly by 0.5% to record an increase in the first quarter after the general elections. 44. 37 With the exception of year 2000 which recorded 0.88% increase in index three months before and a further 3.7% increase three months after the generals (which can be attributed to the smooth change in government from National Democratic Congress (NDC) to New Patriotic Party (NPP) that led to wooing the trust of more investors into the market), year 2004 and 2008 recorded 3% and 3.5% decreases respectively in the market index in the last quarter prior to elections. The above suggest that events before and after the general election may have an impact on the performance of the market as measured by the GSE All-share index. When there is smooth change in political regime, the market might respond by recording an increase in the GSE index. 4.5 Performance of GSE over the Period of Study from Political Perspective This section analyses GSEs performance over the study period from the political party or government regime perspective. With respect to the study period (1991 to 2000), Ghana has had two change of government or political regime. That is, the National Democratic Congress (NDC) government whose tenure spanned from 1992 to 2000 and the New Patriotic Party (NPP) government which ruled from 2001 to 2008. Currently the NDC is in government. 45. 38 4.5.1 GSE performance under NDC administration Analysis of data relating to the performance of GSE under the NDC regime revealed that the market performed creditably well. With a mean annual GSE index of 67.13 in 1992, the market soared through a steady annual price percentage increment through the first term of office of the NDC government (that is, 1996, ended at an index of 354.5 representing 428% over the 4year term) to the end of its second term in year 2000 with an 813.3 index (129.4% increment over second 4year term). 4.5.2 GSE performance under NPP administration Data available revealed that the NPP administration also started with an index of about 920.1 in 2001 and as at the end of the second term of office in 2008, the market had recorded a 9439 mean index though there was slight decline in the market index at some point in the reign which resulted from the global economy decline. However, the GSEs performance under this administration was also remarkable. 46. 39 CHAPTER 5 5.1 DISCUSSION AND CONCLUSION This study on Ghana Stock Market reveals that there is a significant difference in the performance of the market for the years before and after the general elections. However, a comparison of the control years also shows that there is a significant difference in the performance of the market one year to the next. Therefore, it is difficult to conclude that the general election is the event that causes the difference in market performance as also cited by Kithinji (2008). There tend to be a link between the performance of the stock market and the political events prevailing. It was obvious from the study that the incident free change in government from the NDC to NPP administration in 2001 boosted the performance of the market. . Market volatility appears to be lowest in the years just before a general election and also in the election years themselves. 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School of Accounting and Finance, University of Wollongong, Wollongong, NSW 2522, Australia. pp. 1-19 52. 45 APPENDIX GSE MONTHLY ALL-SHARE INDEX 1991-2009 Month/ Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 January 67.69 67.2 73.03 138.07 298.48 312.45 356.6 526 878.49 February 66.03 68.81 84.63 145.94 298.98 326.1 355.63 591.61 881.03 March 63.68 66 79.44 204.7 296.65 331.1 362.17 736.92 834.19 April 61.43 63.54 82.89 290.12 310.04 349.98 365.74 1,053.61 834.1 May 59.42 61.56 84.71 324.9 315.46 349.9 381.58 1,125.33 819.16 June 59.71 60.72 87.36 310.87 307.34 360.75 385.27 935.43 800.43 July 59.5 65.63 91.2 299.62 310.57 365.66 385.11 992.88 791.79 August 59.26 70.21 100.01 291.29 312.95 373.45 403.94 1,004.58 785.82 September 58.75 71.86 103.22 296.18 308.53 383.21 427.78 943.60 770.54 October 58.9 72.31 109.37 303.14 317.16 373.64 470.42 825.64 762.45 November 62.38 71.31 120.93 300.56 320.51 367.4 499.34 786.94 752.61 December 64.19 66.47 131.32 296.86 318.03 360.34 500.71 827.79 741.37 TOTAL 740.94 805.62 1148.11 3202.25 3714.7 4253.98 4894.29 10,350.33 9651.98 AVERAGE INDEX 61.74 67.13 95.67 266.85 309.56 354.5 407.86 862.53 804.33 Month/Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 January 739.43 859.66 956.41 1,416.82 3,654.62 6,855.63 4,731.62 5,028.87 6,668.25 10,342.70 February 742 862.02 963.84 1,462 4,146.25 6,820.77 4,739.34 5,051.00 6,859.27 9,997.79 March 754.25 895.46 996.03 1,592.55 5,256.73 6,577.69 4,758.28 5,089.42 7,260.29 9,591.53 April 820.24 897.26 1,026.31 1,718.51 6,230.76 6,305.70 4,780.15 5,145.33 8,719.04 8,980.21 May 820.44 896.8 1,072.87 1,815.16 6,743.18 6,065.66 4,807.33 5,184.89 9,583.17 8,269.90 June 816.15 909.03 1,185.38 1,967.87 6,964.84 6,003.22 4,860.40 5,280.90 10,146.02 6,143.88 July 821.06 941.57 1,243.67 2,206.35 7,092.48 5,312.69 4,878.50 5,365.85 10,535.26 5,364.78 August 820.92 949.65 12,281.01 2,431.90 7,741.31 4,855.47 4,906.18 5,467.68 10,665.03 5,287.17 September 850.35 953.34 1,308.27 2,603.26 7,087.17 4,880.92 4,950.44 5,629.87 10,882.70 6,429.10 October 855.75 959.99 1,331.67 2,792.59 6,996.18 4,893.13 4,974.89 5,766.73 10,858.61 5,982.39 November 855.68 958.52 1,353.14 3,057.60 6,838.28 4,896.79 5,002.29 5,930.36 10,615.86 5,403.63 December 863.31 958.14 1,377.65 3,421.26 6,779.01 4,784.90 5,021.32 6,487.48 10,473.62 5,378.85 TOTAL 9759.58 11041.44 25096.25 26485.88 75530.81 68252.57 58410.74 65428.38 113267.1 87171.93 AVERAGE INDEX 813.29 920.12 2091.35 2207.16 6294.23 5687.71 4867.56 5452.37 9438.93 7264.33 53. 46 Amity University PAN African eNetwork Project (Synopsis) Name of the student: Gabriel Abbam Course: MBA IB Registration No. IB016320102012048 Country: Ghana Admission Session: July 20092010 or January 2010 Specialization: Finance Faculty Name: Navneet Saxena Status (Accepted or Rejected): accepted Comments: The synopsis is accepted. It is suggested that a longer time horizon should be considered to ascertain the impact of elections on the economy. 54. 47 Title of the Project: GHANA STOCK MARKET PERFORMANCE BEFORE AND AFTER GENERAL ELECTIONS Statement about the Problem in brief: Several studies have been done establishing the relationship between the stock market performance and political activities in specific countries. Most of these studies were carried out in developed stock markets. However, not much research is done on emerging stock markets in developing countries. Studies on the effect of political activities on the performance of emerging stock markets are very important as more investors participate in these markets. The investors in emerging markets are local and the numbers of foreign investors continue to increase overtime Why is the particular topic chosen? To find out the performance of Ghana Stock Exchange (GSE) before and after general elections. What contribution would the project make and to whom? This study would make both home/local and foreign investors informed such that they would be cautious of the time they invest. Objective and scope of the study: To study the stock market performance before and after general elections in Ghana Methodology: Study Design The study would involve analyzing the stock market performance before and after general elections in Ghana. The period of study would be focused on GSE performance for the period between 1991 and 2009. This is due to the fact that it is during this period that Ghana has had successful competitive presidential and parliamentary general elections as compared to other election years. Data Collection Secondary data from the GSE would be used for the study. Data covering the period between 31st January 1991 and 30th November 2009 would be obtained from the GSE. General elections in Ghana are held in four years with the first successful election held in 1992. Thus 7th December 1992, 7th December 1996, 7th December 2000, 7th December 2004 and 7th December 2008 would be the event date. Data Analysis The main data variable for this study would be the GSE index. The GSE Allshare index would be analyzed using the SPSS software to capture trends of performance of the market for the study period. The percentage increase or decrease in the GSE index before and after elections would be calculated and a comparison done from one election period to another. The pooledvariance ttest for differences in means would be used to compare significance of differences for the comparative study periods. 55. 48 Chapter scheme: Chapter 1 Introduction 1.1Problem statement 1.2Objectives Chapter 2 Literature Review Chapter 3 Research Methodology Chapter 4 Data Analysis and Results Chapter 5 Discussion and Conclusion References and Appendices Guids Resume: Not applicable 56. 49