INTRODUCTION The stock market in the economy of any country is very vital and plays a pivotal role in the

growth of industries and trade. The performance of the stock market is of great importance to both local and foreign investors as they expect good returns on their investment. It serves as the source for companies to raise additional capital for expansion. The liquidity that an exchange provides by the stock market affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks and bonds, compared to other less liquid investments such as real estate. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. The government on the other hand also benefits as foreign direct investments (FDIs) in the country increases due to the performance of the stock market since it is a reflection of the performance of the listed companies. Therefore, governments through the central banks are more interested in the control and behavior of the stock market and, in general, the smooth operation of financial system functions. BACKGROUND OF THE STUDY The importance of allowing the invisible hands of an economy to operate as stipulated by the economist, Adam Smith, has been adopted by most countries. In these countries, governments are into the production of public goods while private goods are produced by individual investors. Research has shown that countries which practice this system have high potential of economic growth. It is, therefore, the role of governments to develop policies that would help local businesses (private sector) to increase their production at a lower cost in order to promote the development and growth of the country. In this regard, the governments in their quest to promote the private sector has been formulating policies to attract investors both locally and internationally by providing favorable environment for them. These policies include the restructuring of the financial market.Financial markets have become vital tools for sustaining economies especially the developing countries. The growth in the stock

market gives an indication of the increase in demand of financial securities and lower cost of investing in international financial markets. In Ghana, even though the financial market (Ghana Stock Exchange) was established in 1989 under the Ghanas Company Code 1963 (Act 179) as a private company, it became operational in 1990. The idea of its establishment dates back to 1968. The stock exchange was given recognition as an authorized Stock Exchange under the Stock Exchange Act of 1971 (Act 348). The status of the exchange changed to a public limited company in 1994. Since the establishment of the Stock Exchange, 37 companies have been listed as at April, 2012. The Exchange realized a market capitalization of GH17.9 billion in 2008. This showed an increase of 44% compared to GH12.4 billion in 2007 and declined to 11% (GH15.9 billion) in 2009. Statement of the problem According to Greenwood and Smith (1996), stock markets are relevant in mobilizing savings, hence facilitating investment into most productive technologies. Companies take advantage of their efficiency to explore the market for profit. Financial securities provide companies with long term funds to expand their operations. According to Osei (2004), lack of long term investment capital is the major constraint to the market growth and development throughout Sub Saharan Africa and not only limited to Ghana. The establishment of the Ghana Stock Exchange is expected to increase liquidity of financial assets, make possible diversification of risk and increase savings to promote economic growth and development. To achieve these objectives, the Ghana Stock Exchange seeks to among others 1. Intensify its efforts in increasing listings and promote fund mobilization. 2. Encourage mobilization of State Owned Enterprises (SOEs) on the exchange. 3. To encourage the listing of corporate and government debts instruments; and develop new products such as collective investment schemes. 4. Automation of trading, clearing, settlement and depository system to raise the efficiency of the securities market for all users. The study, therefore, seeks to analyse the performance of Ghana Stock Exchange from 1990-2011.

Performance of Ghana Stock Exchange Trading commenced on November 12, 1990 and after more than a decade of operations, the exchange has carved for itself a prominent niche in the financial market by providing the leadership in the development of Ghanas capital market and serving as a pivot for long term capital mobilization. It has moved the fortunes of not only the national economy, but the finances of the companies listed. The Ghana Stock Exchange all-share index now the GSE-composite index (GSECI) is used as a measure of performance of the Ghana Stock Exchange. Between 1990 and 2009, the index increased from 77.25 points to 5,572.34 points. In 1993, the GSE emerged as the 6th best performing emerging stock market with an impressive return of 114%. In 1994, a study conducted by Birinyi Associates, a research group in the USA; the GSE came out as the best performing market among all the emerging markets with a gain of 124%. Its the key performance indicator, the Ghana Stock Exchange (GSE) all-Share Index, gained 91.33 per cent in 2004 thereby surpassing most of the world emerging again. Relative to its frog leap gains in 2008 based on performances in previous years from 1993 to 2007, the index in subsequent years thereafter recorded some poor performance with a loss of 47%. The GSE in 2008, notwithstanding the global financial crisis performed well; on recording 10,431.64 points, a gain of 58%. In 2009, GSE was one of the worst in performers in the world losing 47%.In February 18, 2011, the stock inched down to 0.86 points for the fourth straight session to close at 1,048.78 points. The stock faced serious down turns in 2009 against the background of 2008 being one of the best years. The effect of the global financial crisis which began to be felt in the fourth quarter of 2008 and the fact that in 2009, the Exchange also effectively began migrating from paper certification to electronic book entry securities under the new automated Trading System was the reason for the market going through a shake-up in 2009. That process naturally requires time since investors needed to be convinced to get on board. The rise in local interest rate thus making money market instruments relatively more attractive was also a contributory factor. At the end of trading the stock market review for the week ended March 16, 2012 showed improvement in activity, with a total of 1,300,979 shares valued at GH1,141,822 being traded, as

compared to 747,434 shares valued at GH821,183 the previous week. This represents 74.06% increase in the total volume traded and a 39.05% increase in total value traded. Three equities: SIC, UTB and GCB accounted for 48.94% of the total volume traded whilst GCB, EBG and FML accounted for 57.23% of the value traded. The equity market ended the week with 6 gainers and 3 losers. GGBL, the top gainer increased by 5.73% to close at GH1.66. On the other hand, ALW, lost 8.33% of its value to close at GH0.11. The price changes within the week brought the GSE Composite Index (GSE-CI) down whilst the Strategic African Securities Index (SASI), the SAS Manufacturing Index (SAS-MI) and the SAS Financial Index (SAS-FI) went up. The GSE-CI lost 2.69 points to close at 1,032.99. This represents a year to-date gain of 6.60%, whilst the SAS Index gained 11.84 points to close at 1,898.54. This represents a year-to-date gain of 7.80%. POLITICAL SITUATIONS IN GHANA One of the major differences between efficient and inefficient market is the political situation in the country. Political instability sometimes results in stock market being manipulated by the government which will cause the inefficiency of the stock market. Government control of the stock market in many instances results in the slow pace of information made available to the public. This makes the decision making process difficult and inaccurate due to the information available. Prices will reflect neither the true value of the securities nor other information in the market resulting in an inefficient stock market. Political instability makes it difficult to value assets in the future, since unexpected policy decisions may quickly change the valuation of a currency. In such situations, the exchange rates tend to weaken and be more volatile. At the same time, the willingness of investors to have their money invested in the Ghana stock exchange or the capital market fall sharply, because you do not know exactly which politics will be conducted in the future. There is the need for a politically stable situation as a condition precedent for markets to be efficient.In his chronological summary of major events in the financial development of Ghana, Sam Mensah, Ph.D (1997) stipulates that financial markets in Ghana have evolved in fairly identifiable stages.

Financial sector development is the interactive outcome of a relationship between regulators and the regulated institutions. The exploration of this interaction presents a better platform to juxtapose historical developments and potential changes in a proper perspective. The development of a financial system and its regulatory regime may be viewed as a change resulting through a process of action and reaction by opposing forces. The idea that regulation of a financial institution is dialectic one of a cyclical interaction between opposing political and economic forces was introduced by Professor Kane in the late 1970s.In the years following independence, the economic and political environment changed significantly. However, the regulatory structure of the financial system did not change. According Kane, the existence of operating rules that are excessively restrictive or benefit a protected class provides strong incentives for individuals in the regulated institutions to find loopholes. In Ghanas case, the post-independence era was dominated by a strong central bank with control over foreign exchange, interest rates and credit allocations, and an array of state-owned banking institutions. At the same time, changes in the economy reflected in high inflation rates, low economic growth tended render the initial set of arguments increasing outdated. The postindependence there was coupled with economic changes as well as underperformance by the banking sector resulting from excessive intervention by the government in the allocation of credit. Bureaucratic control of the credit allocation process severely compromised the quality of credit assessment and fraud and corruption became pervasive. These developments were part of the antithesis leading to the regulatory adjustments of the 1980s. The synthesis which resulted from the weak financial structures of the planned economy period was the Financial Sector Adjustment Program (FINSAP). Launched in 1988, FINSAP provided for a comprehensive restructuring of the financial sector. HISTORY OF THE FINANCIAL MARKET IN GHANA Financial markets in Ghana have evolved in fairly identifiable stages as follows: 1) The Colonial Era (up to 1960) 2) The Centrally Planned and Closed Economy Period (1960-83) 3) The Structural Adjustment and Transition Period (1983-present) 4) The Post Adjustment Period

During the colonial era, the colonial government restricted itself to monetary stability, monetary growth was tied to export performance. Banking was established with the object of providing banking services for the British trading enterprises and the British Colonial Administration. Between 1912 1957, the West African Currency Board (WACB) operated as a central bank operating a Sterling Exchange Standard through a guaranteed convertibility of the West African pound to sterling. There were no exchange controls. The West African Currency Board only operated as a bureau exchanging West African currency for sterling and vice versa and accounting for such activities. It invested its surpluses in approved sterling securities. The financial system played a passive and limited role in promoting economic development. The primary function of the financial system was to provide essential currency infrastructure. The system put in place led to the transformation of the colonial economy from a barter system to a modern currency system. There were virtually no non-bank financial institutions. While there were insurance companies, they were established by British companies, trading houses and banks to support their trade with the U.K. The focus of the industry was generally on commercial risk coverage. There was no life insurance industry. In terms of the attributes of an effective financial system, this system only satisfied the first attribute, that is, the need for an efficient medium of exchange or a monetary system. By 1957, there were three banks: The Colonial bank (now Barclays Bank), the British Bank of West Africa and the Bank of Gold Coast. At independence, the Bank of Gold Coast was renamed to the Ghana Commercial Bank and a central bank, the Bank of Ghana started operations in July 1957. In the immediate post-independence era (between 1960- 1983), the government of Kwame Nkrumah adopted a socialist development strategy under which the state was to be predominant in all aspects of economic policymaking and implementation. This period was characterized by: 1) A comprehensive system of import licensing was instituted in November 1961. 2) The Exchange Control Act of 1961 imposed over economic activities in Ghana. 3) Quantitative restrictions on interest rates. 4) Forced lending programs including requirements for banks to lend to sectors of the economy which were considered priority sectors by the government. By 1983, large state-owned enterprises had run up large overdrafts with the state banking institutions, most of which had become non-performing. The sharp deterioration in Ghanas

economy in the 1970s put severe pressures on the financial system. The 1970s were marked by low average GDP growth of about 2.6%, high inflation which peaked at 123% in 1983, low levels of savings, declining international trade. The Government adopted an economic recovery program which included; devaluation of the currency, dismantling of most price and distribution controls, elimination of many subsidies, broadening of the tax base, improvement of tax collection and restoration of macroeconomic balance. From 1987, there was a gradual liberalization of the financial system. All sectoral credit allocations were phased out, with the last target for agriculture abolished in 1990. Interest rate controls were gradually relaxed and full liberalization was achieved in February 1988. In November 1990, the Bank of Ghana decontrolled all bank charges and fees. A foreign exchange auction was introduced in 1986 and the establishment of forex bureaus were permitted in 1988. By the late 1980s, the World Bank and the Ghana Government had agreed that a reform and restructuring of the financial system was indispensable to a successful economic recovery programme. With technical and financial assistance from the IDA, the government embarked upon a Financial Sector Reform Program in 1988. The objectives of the programme were: to undertake the restructuring of financially distressed banks; to enhance the soundness of the banking system through an improved regulatory and supervisory framework; to improve the mobilization and allocation of financial resources including the development of money and capital markets. These objectives were supported by the IDA through a Financial Sector Adjustment Credit of US$100million. THE STRUCTURE OF THE GHANA STOCK EXCHANGE The Exchange is governed by a Council with representation from Licensed Dealing Members, Listed Companies, the banks, Insurance Companies, Money Market and the general public. The Managing Director of the Exchange is an ex-officio member. The council sets the policies of the Exchange and its functions include preventing fraud and malpractices, maintaining good order among members, regulating stock market business and granting listing. Membership: The Ghana Stock Exchange as a public company limited by guarantee has no owners or shareholders as such, but members are either corporate bodies or individuals.There are three categories of members, namely Licensed Dealing Members, Associate Members and Government Securities

Dealers (PDs). An LDM is a corporate body licensed by the Exchange to deal in all securities. An Associate member is an individual or corporate body which has satisfied the Exchange's membership requirements but is not licensed to deal in securities. A PD is a corporate body, which is approved by the Bank of Ghana and registered by the Exchange to deal only in government securities. Regulatory Framework: GSE operates within a set of Rules, including membership, listing, trading, clearing & settlement and depository. These are collectively referred to as the GSE Rule Book. GSE Securities Depository (GSD): 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. Surveillance: The Securities and Exchange Commission (SEC) carries out regular inspection of Licensed Dealing Members' operations and books. Brokers are also required to submit returns to GSE. ROLE OF GHANA STOCK EXCHANGE IN THE GHANAIAN ECONOMY Raising capital The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public. Governments also, at various levels may decide to borrow money to finance infrastructure projects by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. Barometer of the economy At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

Profit sharing Both casual and professional stock investors, as large as institutional investors or as small as an

ordinary middle class family, through dividends and stock price increases that may result in capital gains, share in the wealth of profitable businesses. Unprofitable and troubled businesses may result in capital losses for shareholders. Corporate governance By having a wide and varied scope of owners, companies generally tend to improve management standards and efficiency to satisfy the demands of these shareholders, and the more stringent rules for public corporations imposed by public stock exchanges and the government. Despite this claim, there has been considerable slippage in corporate governance on the part of some public companies such as Enron Corporation (2001), Adelphia (2002) etc. When poor financial, ethical or managerial records are known by the stock investors, the stock and the company tend to lose value. In the stock exchanges, shareholders of underperforming firms are often penalized by significant share price decline, and they tend as well to dismiss incompetent management teams. IMPORTANCE OF STOCK MARKET TO DEVELOPING COUNTRIES The primary function of the stock market is that it provides the platform for listed companies to raise funds as it supports the growth of the industry and commerce in the country. According to Alile (1984), the stock market serves as a veritable tool in the mobilization and allocation of savings among competing uses which are critical to the economic growth and efficiency of the economy. Levine (1991) showed a positive relation between financial stock market and economic growth by issuing new financial resources to the firms. The stock market facilitates higher investments and the allocation of capital, and indirectly the economic growth. An efficient stock market contributes to attract more investment by financing productive projects that lead to economic growth, mobilize domestic savings, allocate capital proficiency, reduce risk by diversifying, and facilitate exchange of goods and services (Mishkin 2001; and Caporale et al, 2004). CHALLENGES FACED BY THE GHANA STOCK EXCHANGE The challenges that were established based on the survey and interviews are:

Liquidity: The relative ease with which people get in and out of the market is very low. Investors have to wait for a long time before they can sell out.

Efficiency: The markets response to information is generally slow. Sometimes, the market does not respond to any kind of information at all. In other developed market, the stock market is a barometer of the economy. However, due to information inefficiency, the GSE does not necessarily reflect or mirror the economy.

Inadequate listed companies: The companies currently listed on the bourse are very relatively low (currently 36). This limits investors choice of investments in Ghana as each listed company has one product to offer.

Limited number of securities: The number of securities listed are inadequate, compared to the number of investors. The GSE currently has 35 equities, 3 bonds which rarely trade anyway. People do not have a lot of options on entering the market.

Small float of shares: To compound the situation of limited number of securities, the bulk of issued shares are held by non-resident Ghanaian investors, institutional investors and parents companies who do rarely trade. The average floats of shares available for trade is about 25%. This makes the market very dormant and illiquid.

Non-performing companies: To make matters worse, majority of the listed companies are not doing well at all in terms of profits and share price appreciation. Over the years, just about 12 companies consistently release exciting results and drive the market. This further limits investment options.

High cost of listing: Most of the issuer and operators have complained that the cost of listing is generally very expensive in Ghana. The cost of going public is about 10%-15% of the IPO proceeds. In advance countries it cost less than 1%. This comes with annual listing fees, massive disclosures and very strict regulation. Thus, many companies not using the GSE to raise long-term capital.

Outdated concept of doing business: Most Ghanaian firms do not want to share their company. They prefer to own a rat rather than half of an elephant. Most companies are borrowing at high costs from banks rather than using equity. This probably explains why most Ghanaian companies do not expand outside the borders of Ghana.

Concentration of investment banks in Accra: Some refer to the GSE as an Accra Exchange not a Ghana Exchange since all the brokerage firms are concentrated in Accra. Until the automation, people had to travel to Accra in order to buy or sell their securities. This obviously limited the participation of investors outside Accra.

Interest rate anomaly: In Ghana, the government seems more focused on short-term bills as

the short-term instruments have a higher yield than long-term instruments of comparable credit quality. This has resulted in an inverted yield curve. The inverted yield negatively affects the GSE as more investors buy the short-term bills rather than invest in long-term securities on the GSE.

Non existence of Credit rating agencies: Credit rating helps to give a signal of what is good and relatively safe to invest in. Since independence, there has not been any credit rating agency in Ghana. As a result, domestic investors find it difficult to get information to assess the credit worthiness of borrowers. Until 2003, Ghana had not been rated by any international credit rating agency like Standard and Poors (S&P). Hence, foreign investors could not have confidence to trade in Ghanas capital markets. Such agencies are still non-existent in Ghana.

Lack of education: Most Ghanaians do not understand the whole concept of buying shares on the GSE and very few also appreciate long-term investing. Educating the general public will therefore involve significant costs to bring the average Ghanaian to the desired level ie. from creating awareness to providing information for sound decision-making.

Inadequate capitalization of LDMs: The licensed dealing members (LDMs) of the GSE are not adequately capitalized to counter weight the huge foreign investments.

THE EMPERICAL LITERATURE The importance of stock/ financial markets performance cannot be downplayed since it runs through the political, economic and social arenas of the economy. It is important not only to the investor but to the government as well. The financial system plays an important role in full-filling the needs of investors by mobilizing funds and transforming them into an asset (Ndikumana, 2001) in such a way that, an efficient financial system allocates the resources efficiently through its financial intermediaries, which eventually identify the most productive investment opportunities. According to Lee (1998), stock markets provide investors the opportunity to trade, invest, speculate, hedge and arbitrage. In addition they serve as a mechanism for price discovery and information dissemination while providing vehicles for raising finances for companies. Stock markets are used to implement privatization programs, and they often play an important role in the development of emerging economies. He argued that if an economy does not have efficient financial market 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.

Cited from Paramati and Gupta (2011), India has adopted modern strategies to promote its stock market development since late 1980s and this has become more sophisticated after the introduction of economic reforms of 1991. These reforms brought expansion in terms of number of listed companies, number of shareholders in the market and market capitalization; this has resulted in India to become one of the most active and leading markets among all developing countries of the world (Nagaishi, 1999). Research has shown that stock/ financial market performance is influenced by the level of information disseminated to the public or information cost, government and economic activities. 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, 1976). Reduction of the search and information costs of transaction at the stock market is key to facilitating growth of the market. Search costs presents explicit costs such as money spent to 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 (Fabbozi 1995). BASE THEORY- (EFFICIENT MARKET HYPOTHESIS) Market efficiency refers to a condition, in which current prices reflect all the publicly available information about a security. The basic idea underlying market efficiency is that competition will drive all information into the price quickly. In the financial market, the maximum price that investors are willing to pay for a financial asset is actually the current value of future cash payments that discounted at a higher rate to compensate us for the uncertainty in the cash flow projections. Therefore what investors are trading is actually information as a "commodity" in financial market for the future cash flows and information about the degree of certainty. The Theory relating to Efficient Market Hypothesis (EMH) The Efficient Market Hypothesis (EMH) has been consented as one of the cornerstones of modern financial economics. Efficient market emerges when new information is quickly incorporated into

the price so that price becomes information. In other words the current market price reflects all available information. Under these conditions the current market price in any financial market could be the best-unbiased estimate of the value of the investment. Consequently, three versions of EMH are being distinguished depending on the level of available information. WEAK FORM EMH The weak form EMH stipulates that current asset prices already reflect past price and volume information. The information contained in the past sequence of prices of a security is fully reflected in the current market price of that security. It is named weak form because the security prices are the most publicly and easily accessible pieces of information. It implies that no one should be able to outperform the market using something that "everybody else knows". Yet, there are still numbers of financial researchers who are studying the past stock price series and trading volume data in attempt to generate profit. This technique, also called technical analysis, is asserted by EMH as useless for predicting future price changes. SEMI-STRONG FORM EMH The semi strong form EMH states that all publicly available information is similarly already incorporated into asset prices. In other words, all publicly available information is fully reflected in a security's current market price. The public information states not only past prices but also data reported in a company's financial statements, announcement, economic factors and others. It also implies that no one should be able to outperform the market using something that "everybody else knows". This indicates that a company's financial statements are of no use in forecasting future price movements and securing high investment returns. STRONG FORM EMH The strong form EMH stipulates that private information or insider information is quickly incorporated by market prices and therefore cannot be used to reap abnormal trading profits. Thus, all information, whether public or private, is fully reflected in a security's current market price. This means, even the company's management (insider) are not able to make gains from inside information they hold. They are not able to take the advantage to profit from information such as take over decision which has been made ten minutes ago. ENVIRONMENTAL ANALYSIS

In order to better appreciate the analysis of Ghana stock exchange performance and its impact on the economy , there is a need to understand the Economic, Political, Technological and Sociological Impact on the country. The growth of stocks in the global economy and its impact directly correlates the impact of such growths in developing countries like Ghana. Over the past ten years, the total value of stocks listed in all of the world's stock markets, rose from $4.7 trillion to $15.2 trillion, while the share of total world capitalization represented by the emerging markets jumped from less than 4 percent to almost 13 percent. These impacts mentioned above will be further explained in subsequent paragraphs. Political Impact: This refers to governments regulation, policies and other laws impacting the stock market of the country. Whilst extending the stock exchanges tax holiday for five years, the exemption from capital gain tax has also been extended for further five years to promote investment and deepen activities on stock the exchange. Tax exemptions by the government is a political intervention that reliefs listed companies and the stock markets and make it more attractive for prospective and existing investors. Apart from tax reliefs, policies and regulations by the government can either make or unmake the stock market. A regulatory body like The Security and Exchange Commission (SEC) provides for the functions of the commission, the establishment of stock markets, the licensing of stock brokers/dealers and investment advisers, Unitrust and Mutual Funds, registers of interest in securities and mode of conduct of security businesses. The political impact on the stock market is inevitable since it creates the platform for the operations of the stock market Economic Impact: Inflation The GSE is affected by numerous economic factors such as Inflation, Employment, Market liquidity and interest rates are among the major economic indicators affecting the GSE. Inflation reflects the

situation where the demand for goods and services exceed their supply and its characterized by high prices. People may hedge against inflation by investing in stocks which invariably tends to boom activities of the GSE. In the long run, a companys revenue and earnings in stock should increase at the same pace as inflation. However, the impact of inflation is on the total earnings of companies since total earnings could be overstated. High transaction cost, information cost etc. may also hamper the activities of the stock exchange as investors may be discouraged from venturing into stocks due to this phenomenon. Market liquidity For stock markets in developing countries like Ghana, most investors prefer liquid markets where they can maintain control of their investments over a long period and where equity can be easily sold quickly and cheaply if they need access to their savings or want to alter their portfolios. With this stock market liquidity trait, investors will be attracted to advance funds into the Ghana stock market since the risk of readily obtaining their equity is less thereby enhancing the growth of the Ghanaian economy. However, this could also have some adverse impact on the economy since risk averse investors would quickly sell all their shares at the least fall in share prices or any panic. This causes a reduction in total shares traded on the countrys stock market leading to slow growth of the economy as well.

Employment The state and rate of employment has its economic impact on the GSE since individuals can only invest if there is a source of income or funds. This is considered an essential economic factor that influences the GSE since a considerable size of the population would devote their finance into stocks where there is secured employment and more so where there is enough to save . Social Impact:

This basically refers to the impact society has on the Ghana stock exchange. It can be confirmed that activities in our social settings indirectly impacts listed companies. This is evidenced through the provision of the necessary human resource for such listed industries like the mining, oil ,and banking sector.The Human resource factor is inevitable when it comes industry operations since the GSE and its supporting listed companies cannot operate in a vacuum. The essence of social impact is underscored by appreciative gestures of such companies through activities like Corporate social responsibilities, charity donations, sponsorships etc. out of profits from the stock market. For instance, the offer of Tullows shares on the Ghana stock exchange gives Ghanaian investors the opportunity to own shares in Tullow as well as benefit from the company's operations across its global portfolio of assets. Education cannot be ruled out when determining the social impact on the GSE. Patronage of the GSE can be enhanced through effective education. It would be virtually difficult to attract prospective investors if the essence of stock trading is not effectively communicated to them. Technological Impact: For a successful global market there is a need to obtain a platform that can support the operations of such markets like the GSE.The operations of the stock market cannot thrive in isolation, without the needed sophisticated technology. The nature of the stock exchange market drives the evolving technology used. It was at the end of 1986 on the London stock exchange when the stock exchange Automated Quotation System (AQS) replaced the trading floor where brokers had to meet face to face to trade. Introduction of the AQS improved the volume of transactions by 150% average per day. Technology has given the GSE stock trading a completely enhanced facelift which keeps improving as and when system revision is done. Inability of a countrys trading software to execute such basic functions like website security protection, website update, reporting tools, capacity to absorb increased volumes, speed to support agro trading etc. can affect the confidence of investors and also affect performance and efficiency of the stock market. This makes it essential for the Ghana stock exchange to be abreast with such technology as they

impact each other directly. LEGAL AND REGULATORY FRAMEWORK The legal and regulatory framework of the Ghana Stock Exchange is the structure that organizes and supervises how trading of stock markets operate on the exchange. It outlines the rights and obligations of market participants and spells out guidelines for equity in trading on a reliable marketplace between investors and issuers or companies. The regulatory system of the securities markets in general is an intricate web of institutions and laws. Constitutionally three institutions regulate the securities market. They are: 1. Bank of Ghana 2. Securities and Exchange Commission(SEC) 3. Register general of companies The Securities Exchange Commission (SEC) is the apex regulatory body that supervises the securities market under the SECURITIES INDUSTRY LAW, PNDCL 333 (1993) and its functions include; 1. Maintaining surveillance over the securities business to ensure orderly, fair and equitable dealing in securities.
2. Registering, licensing, authorizing a stock exchange, investment advisors, and securities

dealers. 3. Protecting the integrity of the securities market against any abuse arising from the practice of insider trading. The Ghana stock exchange is part of the securities market. It is a public company which is limited by guarantee and has no owners or shareholders as such, but members are either corporate bodies or individuals. They are classified as Self Regulatory Organization (SRO) and thus establish rules that govern:

member firms conduct setting qualification standards for professionals in the industry,

examining members for their financial and operational condition and compliance with the rules,

investigating alleged violations of security laws, disciplining violators and responding to enquiries from investors and member.

The SRO responsibility of GSE is reflected in two fold that regulate membership and transactions of GSE. Membership regulation: There are two membership requirements Associate membership (open to any law abiding individual, corporate or professional body) Licensed dealing Members (open to companies incorporated under the Companies Code 1963(Act 179) and partnerships incorporated under the Incorporated private partnership. They only have the right to deal in securities on the GSE.

GHANA STOCK EXCHANGE TRADING SYSTEM The GSE embarked on a project to automate its trading system in 2007. Three trading processes were automated namely; the electronic system, electronic clearing and settlement system and the Depository. The depository became operational in November 2008. Its benefit was to enable investors to open securities accounts to deposit their shares. Investors can also transfer, pledge and access security information in a more efficient manner from the depository. The new trading system makes it possible for stockbrokers to trade from three different levels namely; the exchange floor, dealers offices and through the Wireless Access Network (WAN) or secured internet Virtual Private Network (VPN). Remote trading started on June 01, 2009. Stockbrokers can trade directly from their offices without going to the trading floor .The automated trading as well as the clearing and settlement system went online on March 2009. PERFORMANCE MEASUREMENT The GSE uses two indices, namely the GSE Composite Index (GSE-CI) and the GSE Financial Stocks Index (GSE-FSI).

GSE Composite Index (GSE-CI) The calculation of the GSE Composite Index (GSE-CI) is based on the volume weighted average closing price of all listed stocks. All ordinary shares listed on GSE are included in the GSE-CI at total market capitalization, with the exception of those of listed companies which have shares listed on other markets. The GSE-CI is a market capitalization weighted index, i.e. each constituent is given weight according to its market capitalization. The base date for the GSE-CI is December 31, 2010 and the base index value is 1000. GSE Financial Stocks Index (GSE-FSI) This index have its constituents as listed stocks from the financial sector including banking and insurance sector stocks. All ordinary shares of the financial stocks listed on GSE are included in the GSE-FSI at total market capitalization, except for those of stocks which are listed on other markets. SWOT ANALYSIS- STRENGHTS The Ghana stock Exchange like other financial institutions serves as a veritable tool in the mobilization and allocation of savings among competing uses which are critical to the growth and efficiency of the economy (Alile, 1984). It controls the granting of quotations on the securities market in respect of bonds, shares and other securities of any company, corporation, government, municipality, local authority or other body corporate; The GSE also co-ordinates the stock dealing activities of members and facilitate the exchange of information including prices of securities listed for their mutual advantages and for the benefit of their clients. Other researchers have showed that the stock market development positively influences the economic growth (Korajczyk, 1996, Levine and Zervos, 1998). WEAKNESS The Ghana Stock Exchange (GSE) has authority to monitor timely submission of financial statements and enforce compliance with disclosure requirements by listed companies. However its Listing Department though responsible lacks capacity to effectively monitor making the enforcement weak. Available sanctions for noncompliance include written warning letters and suspension of a listing; no monetary penalties have been legislated. No company has yet been suspended for a violation or non-compliance.

Other factors which has stifled the development of the GSE relates to the absence of a strong and active domestic investor base, led by institutional investors such as pension funds and insurance companies. Clearing, Settlement and Trade systems as well as trading infrastructure should be upgraded. OPPORTUNITY The listing of the first Exchange Traded Funds (ETFs) on Ghana Stock Exchange provides investors the opportunity to own units tied to the value of their underlying assets. Exchange Traded Funds are securities traded on exchanges like shares but linked to the combined value of a portfolio or basket of underlying assets such as shares, commodities or bonds. In line with the strategic plan, aimed to develop and introduce new products and improve on the back of new listings on the bourse as part of a commercialization process, the Exchange is working with ABSA Capital to list the commodity-backed New Gold ETF, which is already listed on the Johannesburg and Botswana Stock exchanges. ETFs would attract and diversify the investment options available to investors, enhance liquidity and also boost the revenue base of the Exchange. Since the ETFs would be traded under a different regime, current trading rules on the Exchange would not apply hence the need to draw new rules. In addition; there would be continuous stakeholders consultations and education to deepen understanding of the ETFs. The target of the GSE is a total of 50 listed companies up from the current 34. With the launch of an alternative market smaller companies will be enabled to raise capital. The target of 50 listed companies is to make the market look additionally viable and interesting. Furthermore, the GSE recently signed an MOU with Fidelity Capital Partners Limited (FCPL) in which the organisations intend to work to promote the increase and next listing of companies, especially SMEs on the exchange. Under the MOU, the exchange will be promoted to investee companies of FCPL, thus enhancing the success of SME listings on the GSE. THREATS The Ghana stock exchange is plagued with some challenges. Notable among these is political and economic instability. On the macroeconomic front, the economy of Ghana has been characterized by high inflation, high

interest rate and large exchange rates wings as stated in recent past by the Bank of Ghana Monetary Policy report: (vol 3 no 2: 20081). When these indicators or variables tend to be high, they discourage the investors from investing in a specific country because they cant diversify the risk. Investors are also are not sure of recouping their investment. Another problem facing the GSE is due to the stock exchange itself. According to Benimadhu (2003), among the exchange specific issues affecting stock markets in Africa are low level of liquidity, few listed companies and the small size of the exchange as well as efficiency. We assume that the stock exchanges in Africa face the same challenges. The following points need to be noted carefully: Investor confidence, fluctuation in interest rates, high rate of inflation and instability of the cedi made it difficult to predict the future of the capital market.

RISK ANALYSIS The risk of the GSE is common with all stock exchanges globally with variability in it measure. Two types of risk are present in most investments: systematic risk and unsystematic risk. Systematic Risk Systematic risk can be thought of as macro risk. For example, political events, natural disasters, and other fairly unpredictable events could at any time affect the stock price of many stock market assets. Systematic risk is very difficult to avoid, although professional investors /brokers try to anticipate these events because predicting them can be very profitable. Unsystematic Risk Unlike systematic risk, unsystematic risk can be avoided. These risks stems from specific events that would not affect the stock market generally, but would affect individual stocks. They include fraud or allegations of fraud, workers strike, recalls, mergers and other events. These risks are specific to either industries or even specific firms, and therefore, this risk is not impossible to avoid. Diversification, the strategy of investing in many different types of assets, reduces unsystematic risk to the investor on the GSE. Credit Risk Credit risk is the risk that a company on the stock exchange will be unable to deal with its

obligations, and therefore their asset will become unprofitable. So long as the firm has adequate cash flows (visible by using the statement of cash flows), credit risk is not a major asset concern. Political Risk Political risk refers to the risk that the country will change the rules under which its financial system operates in some way that affects that country's native financial instruments and assets; country risk is also known as political risk. This type of risk is more common in stock exchanges of developing countries as the GSE. Market Risk Market risk is risk associated with daily fluctuations in stock price. Market risk is also referred to as volatility; assets with high volatility (market risk) are likely to fluctuate greatly in stock price, whereas assets with low volatility are more immune to fast, large price changes. Volatility is important in the stock world for a variety of reasons. The more volatile a stock, the more potential for profit there may exist (which is why some investors focus on identifying growth stocks, which have the capability for explosive growth), but at the same time, there is also the possibility of loss. The less volatile the investment, the less on average the return will be to that investment. Stocks are the most volatile of financial assets. Liquidity Risk The final type of risk associated with stock market transactions is liquidity risk. Liquidity risk refers to risk that the stock will not be able to be traded fast enough to avoid a loss or capitalize on a potential profit. Liquidity risk can be avoided by making sure the daily volume of share trading is above a certain level, so that the investor can be more assured that the desired trades will go through in a timely manner.

THE FUTURE OF THE GHANA STOCK EXCHANGE The Ghana stock exchange provides a perfect platform and an enabling environment to thrive and flourish organizations by giving them access to raise the needed funds. Investors also obtain liquidity, fair capital safety and diversity of their investment on the Ghana stock exchange.

The economy of Ghana has seen sustained and unbroken economic growth since the early 1990s. The influx of banks, mining companies and subsequent oil finds tend to widen the growing opportunities of the GSE with respect to the economy. The economic prospect of the Ghana stock exchange is evident in the potential growth of listed and non listed companies and their propensity to acquire more capital to support their operations. Ghana with a population of over 23million, 27 banks and 1.2 million account holders shows that only 5.2% are into the sector leaving more room for savings and investments in this area. The Ghana Stock Exchange is no exception as it is the only stock exchange in the country . One major plan of the GSE is to improve the market via a three year plan covering 2011 to 2013 with measures to increase size and liquidity through generating incomes from other sources like data sales which is expected to rise by 5% in 2013 whilst reducing trading commission by 0.5%. GSE is also developing a second tier of stock for the Small and medium Scale Enterprises on a separate junior market to enable them list since they dont meet the listing requirement like the large corporations. With regards to Law reforms, SEC has developed a five year plan to review the regulations and functions of the GSE. Education and Policies should be put in place to encourage Ghanaians and foreigners alike to invest in stocks and bonds enhancing future participation on the GSE. Another way to enhance the status of Ghana Stock Exchange is to promote equity financing in Ghana. The current situation of company ownership of shares as against individual ownership should be reviewed to give more opportunity to equity financing. The GSE must lower the cost of listing to encourage the SMEs to use the capital market to raise capital. The government must use the GSE for its future divestiture programs as it will get more companies listed to enhance the level of activity. Through legislation, companies that exploit natural resources can be mandated to list on the GSE to give the local people the opportunity to take decisions. Analysis of Ghana Stock Exchange Performance The Ghana Stock Exchange had for the past years experienced ups and downs in the performance.

Analysis by the team revealed that the performance of the exchange is influenced by both micro and macro variables. Micro factors Dividend payout policy by the listed companies. Small number of securities available on the stock exchange. Institutional investors not trading Availability of natural resources or raw materials Macro factors Rising interest rate Inflation Productivity level (GDP) of the country Political situation The growth of the stock exchange in 2006 and 2008 can be attributed to the growth in the national economy. In 2006, Ghanas economy grew to 6.4% and hit one of the highest growths ever in 2008 by recording 7.3% in the West Africa sub-region. It also recorded the best returns of 58.1% globally. The exploration of and its export contributed to a 5.9% growth in the country in 2010, which influenced the performance of GSE by a 32.25% increase in its share index. Ghana Stock Exchange performance can also be attributed to the renewed interest in the country from new investors who fled the stock exchange during the 2009 global financial crisis. In 2005, the exchange experienced a market return of -29.85% due to a fall in inflation from 18.18% to 15.48%. Investors withdrew the investments from the stock exchange into a more lucrative investment opportunity that would earn them more income.
The Ghana Stock Exchange ended the year 2009 as the least performing market in Africa with a drop of negative 46.58% in the GSE All-Share index. The year also experienced a rise in local interest rate which made the money market instruments relatively more attractive. Investors moved from the security market to the money market by increasing deposits. The poor performance of the exchange resulted from the effect of the global financial crisis which began to be felt in the fourth quarter of 2008 and the fact that in 2009, the Exchange also effectively began migrating from paper certification to electronic book entry securities under our new automated Trading System. That process naturally requires time since investors needed to be convinced to get on board.

REFERENCE Greenwood, J and Smith B., 1996. Financial Markets in Development and the Development of

Financial markets Journal of Economic Dynamics and Control. 21: pp145-181 Journal of Money, Investment and Banking ISSN 1450-288X Issue 5 (2008) Owusu-Nantwi, Victor and John K. M. Kuwornu, Analyzing the effect of macroeconomic variables on stock market returns: Evidence from Ghana. Journal of Economics and International Finance Vol. 3(11), pp. 605-615, 7 October, 2011. Sam Mensah (September 8-20, 1997), Financial Markets and Institutions: Ghanas Experience. A Presentation at the International Programme on Capital Markets and Portfolio Management in India. http://www.gse.com.gh http://www.worldbank.org/fandd