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Modeling stock price dynamics on the Ghana Stock Exchange: A Geometric Brownian Motion approach

Dennis Lartey Quayesam, Anani Lotsi, Felix Okoe Mettle

Abstract

Modeling financial data often relies on assumptions that may prove insufficient or unrealistic in practice. The Geometric Brownian Motion (GBM) model is frequently employed to represent stock price processes. This study investigates whether the behavior of weekly and monthly returns of selected equities listed on the Ghana Stock Exchange conforms to the GBM model. Parameters of the GBM model were estimated for five equities, and forecasts were generated for three months. Evaluation of estimation accuracy was conducted using mean square error (MSE). Results indicate that the expected prices from the modeled equities closely align with actual stock prices observed on the Exchange. Furthermore, while some deviations were observed, the actual prices consistently fell within the estimated confidence intervals.

Modeling stock price dynamics on the Ghana Stock Exchange: A Geometric Brownian Motion approach

Abstract

Modeling financial data often relies on assumptions that may prove insufficient or unrealistic in practice. The Geometric Brownian Motion (GBM) model is frequently employed to represent stock price processes. This study investigates whether the behavior of weekly and monthly returns of selected equities listed on the Ghana Stock Exchange conforms to the GBM model. Parameters of the GBM model were estimated for five equities, and forecasts were generated for three months. Evaluation of estimation accuracy was conducted using mean square error (MSE). Results indicate that the expected prices from the modeled equities closely align with actual stock prices observed on the Exchange. Furthermore, while some deviations were observed, the actual prices consistently fell within the estimated confidence intervals.
Paper Structure (10 sections, 8 equations, 3 figures, 12 tables)

This paper contains 10 sections, 8 equations, 3 figures, 12 tables.

Table of Contents

  1. Introduction
  2. Literature Review
  3. Methodology
  4. Model Specification
  5. Parameters Estimation
  6. Model Testing
  7. Results and Discussion
  8. Modeling of Stock prices
  9. Mean Square Error of prediction
  10. Conclusions

Figures (3)

  • Figure 1: Time series plot of weekly and monthly stock returns for GCB
  • Figure 2: Histogram plot of weekly and monthly returns for GCB
  • Figure 3: Q-Q plot for weekly and monthly returns for GCB