Limited Stock Market Participation in Ghana: A Behavioral Explanation

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Purpose: The level of participation in stock markets has generally been low, leading to a phenomenon called the stock holding puzzle. There is a general agreement that participation levels in the Ghana stock Exchange are extremely low. The Ghana Statistical Service reveals that approximately (only) one (1) percent of Ghanaian households hold shares of stock. Many have attempted to explain this phenomenon using the basic features of a stock which are its risk and return components. Despite the extensive research conducted to find rational explanations to the stock holding puzzle and the general agreement that there exist a risk-return trade-off in the stock market, these studies have not been able to give a conclusive explanation to the stock holding puzzle. This study therefore seeks to find out the behavioral factors that influence an individual or household’s decision to participate in the stock market in Ghana and to generally investigate the determinants of stock market participation in the country.Methodology: The study employed an empirical regression model based on the behavioral finance framework which has been used by several studies. Findings: The research revealed that awareness of the stock market, trust, education and herding behaviour were positively and significantly related to stock market participation in Ghana.Recommendations: The study therefore recommended that, the Ghana Stock Exchange should embark on a massive public education programme to create public awareness of the stock market.