An Analysis of Financial Regulations on Financial Market Behavior, Liquidity and Stability: Evidence From Ghana

The research examines how financial regulations affect market behavior, liquidity and stability in Ghana’s financial eco-system. Anchored in the Efficient Market Hypothesis (EMH) and Random Walk Theory (RWT), the study explores whether regulatory models enhance or hinder market efficiency by shaping the behavior and expectations of financial actors. Using a quantitative cross-sectional design, the research analyzed secondary data of 20 licensed banks in Ghana, sourced from the 2022 World Development Indicators and 2022 audited financial reports. Statistical, the study evaluated both the direct effects of financial regulations on market behavior, liquidity and stability and the mediating influence of market behavior within these links. The results show that financial regulations positively influence market behavior, liquidity and stability. Market behavior significantly mediates the effect of regulation on liquidity and stability, confirming that regulations impact market outcomes indirectly through investor actions and perceptions. However, some deviations from random walk patterns indicate that behavioral and institutional factors still affect market efficiency in Ghana’s context. Regulatory frameworks that enhance transparency, discipline and information flow are essential to strengthen efficiency, liquidity and stability. Policymakers should enforce compliance more rigorously, while financial firm should align strategic decisions with regulatory frameworks and behavioral trends. By integrating EMH and RWT, this investigation provides novel evidence from an emerging economy, contributing to the understanding of how financial regulations shape market efficiency through behavioral and liquidity conduits.