Characterization and Prediction of the Ghana Stock Exchange Composite Index Utilizing Bayesian Stochastic Volatility Models

Osei K. Tweneboah (), Kwesi A. Ohene-Obeng and Maria C. Mariani
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Osei K. Tweneboah: Ramapo Data Science Program, Ramapo College of New Jersey, Mahwah, NJ 07430, USA
Kwesi A. Ohene-Obeng: Department of Mathematical Sciences, The University of Texas at El Paso, El Paso, TX 79968, USA
Maria C. Mariani: Department of Mathematical Sciences, The University of Texas at El Paso, El Paso, TX 79968, USA

Risks, 2024, vol. 13, issue 1, 1-17

Abstract: This study delves into the dynamics of the Ghana Stock Exchange Composite Index (GSE-CI) over the period from 2011 to 2022, a symbolic emerging market index that presents unique challenges and opportunities for financial analysis. We characterize the GSE-CI using advanced analytical tools such as the Hurst exponent and R / S analysis to uncover its fractal properties and complex dynamics. The paper then advances to predictive modeling, employing an innovative approach with four variations of Stochastic Volatility (SV) models: SV with linear regressors, SV with Student’s t errors, SV with leverage effects, and a hybrid model combining Student’s t errors with leverage. Each model offers a unique perspective on forecasting the behavior of the GSE-CI, with the SV model incorporating Student’s t errors emerging as the most effective, as evidenced by the lowest Root Mean Square Error (RMSE) in our comparative evaluation. The integration of these models highlights their robustness in capturing the intricate volatility patterns of the GSE-CI, making a compelling case for their applicability to similar financial markets in other emerging economies. This research also paves the way for future investigations into other market indices and assets within and beyond the borders of emerging markets.

Keywords: Stochastic Volatility models; financial time series; Ghana Stock Exchange Composite Index; Hurst exponent; R / S analysis (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2024
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