INTERACTION BETWEEN MUTUAL FUNDS AND MACRO-ECONOMIC VARIABLES: A GHANAIAN
INTERACTION BETWEEN MUTUAL FUNDS AND
MACRO-ECONOMIC VARIABLES: A GHANAIAN
CONTEXT
MSc FINANCIAL ECONOMICS
1
ABSTRACT
This paper analyses the interaction between mutual fund prices, exchange rates and inflation in Ghana. The study focuses on the first and the largest equity mutual fund in Ghana known as the Databank EPACK Investment Fund. With over 50 million shareholdings and investments in 12 African countries, the fund is arguably the leading Pan African mutual fund. A total of 190 observations were obtained for the period between January 1997 and
December 2012 of monthly prices of the fund, exchange rates and inflation rate in Ghana.
The vector autoregressive model is employed on the stationary series of the variables. The stationarity of the variables were tested using the Augmented Dickey Fuller (ADF) unit root test and found that variables are in the same order of integration. Long run relationships are tested with Johansen cointegration and it was revealed that variables were not cointegrated at
5% significance. The result suggests that the price of the fund and exchange rates do not interact significantly.
Keywords: Mutual Funds, Exchange Rates, Inflation, Augmented Dickey Fuller Test,
Grange Causality, Impulse Responses and Variance Decomposition
2
TABLE OF CONTENT
1.0
Introduction
4
2.0
Review of Relevant Literature
7
2.1
Ghana’s Macroeconomic Environment
9
2.2
Mutual Funds and Flow Performance
12
2.3
Stocks and Macro-economic Variables
15
3.0
Methodology
22
3.1
Data Sources and Specification of the Model
22
3.2
Descriptive Statistics
22
3.3
Vector Auto Regressive Model
24
3.3.1 Arguments for and against the VAR Model
25
3.3.2 Stationarity and Unit Root Test
27
3.3.3 First Differences
28
3.3.4 Cointegration & Serial Correlation
29
3.3.5 Granger Causality
31
3.3.6 Impulse Responses
32
4.0
Analysis of
MACRO-ECONOMIC VARIABLES: A GHANAIAN
CONTEXT
MSc FINANCIAL ECONOMICS
1
ABSTRACT
This paper analyses the interaction between mutual fund prices, exchange rates and inflation in Ghana. The study focuses on the first and the largest equity mutual fund in Ghana known as the Databank EPACK Investment Fund. With over 50 million shareholdings and investments in 12 African countries, the fund is arguably the leading Pan African mutual fund. A total of 190 observations were obtained for the period between January 1997 and
December 2012 of monthly prices of the fund, exchange rates and inflation rate in Ghana.
The vector autoregressive model is employed on the stationary series of the variables. The stationarity of the variables were tested using the Augmented Dickey Fuller (ADF) unit root test and found that variables are in the same order of integration. Long run relationships are tested with Johansen cointegration and it was revealed that variables were not cointegrated at
5% significance. The result suggests that the price of the fund and exchange rates do not interact significantly.
Keywords: Mutual Funds, Exchange Rates, Inflation, Augmented Dickey Fuller Test,
Grange Causality, Impulse Responses and Variance Decomposition
2
TABLE OF CONTENT
1.0
Introduction
4
2.0
Review of Relevant Literature
7
2.1
Ghana’s Macroeconomic Environment
9
2.2
Mutual Funds and Flow Performance
12
2.3
Stocks and Macro-economic Variables
15
3.0
Methodology
22
3.1
Data Sources and Specification of the Model
22
3.2
Descriptive Statistics
22
3.3
Vector Auto Regressive Model
24
3.3.1 Arguments for and against the VAR Model
25
3.3.2 Stationarity and Unit Root Test
27
3.3.3 First Differences
28
3.3.4 Cointegration & Serial Correlation
29
3.3.5 Granger Causality
31
3.3.6 Impulse Responses
32
4.0
Analysis of
References: (Source Databank Research 2013) The study employed pair wise Granger causality test and discovered that there was no causal