The Impact of Treasury Bill Rate and Interest Rate On The Stock Market Returns: Case Of Ghana Stock Exchange

Abstract

Several studies have suggested that macroeconomic variables affect Stock market returns using Treasury bill rate as a measure of interest rate. The study examines the joint impact of  interest rates and Treasury bill rate on  stock market returns on Ghana Stock Exchange over the period between January 1995 and December 2011. Using Johansen’s Multivariate Cointegration Model and Vector Error  Correction Model the study establish that there is cointegration between Interest rate, Treasury bill rate and stock market returns indicating long run relationship. On the basis of the Multiple Regression Analysis (OLS) carried out by Eviews 7 program, the results show that Treasury bill rate and interest rate both have a negative relationship with stock market returns but  are not  significant. These results lend support to the idea that interest rate and Treasury bill rate has both  negative  relationship  but  weak predictive  power on stock market returns independently. The study conclude that interest rate and Treasury bill rate jointly impact on stock market returns in the long run. Understanding the effects of both  Treasury bill rate and interest rate dynamics on stock market returns will help investors, fund  and portfolio managers and firms make better investment decisions.