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The purpose of this study is to investigate the threshold effect of inflation on capital market performance. The study employed a Threshold Autoregressive model introduced by Tong (1978) and Hansen (1996). The study used secondary quarter-time series data for thirty-years from 1990 to 2019. The capital market performance was measured by the value of shares traded; market turnover; market capitalization and all-shares index. However, the results revealed the following estimated threshold level of inflation for each performance indicator: 3.77%; 4.12%; 4.15%, and 4.22% respectively. In all, the threshold level of inflation estimated was between 3 to 4%. The findings suggest that low inflation is performance-enhancing. Besides, inflation above the threshold level is detrimental to the capital market performance. The study further concluded that the exchange rate equally affects the performance of the capital market. The findings of this investigation might be helpful to the government of Ghana and policymakers as they settle on an inflation target to adopt to avoid the detrimental effects of high inflation while obtaining the growth benefits of low inflation.

The Threshold Effect of Inflation on Capital Market Performance: A Case of Ghana Stock Exchange