Assessing the Co-Movement and Causality Between African Stock Markets, Commodities, Currencies and Emerging Assets: The Role of International Shocks

Abstract

Understanding how markets interact is crucial for financial decision-making, therefore for an investor or financial institution holding a variety of assets, market dynamics are crucial. Using Wavelet Analysis, this study examines the co-movement and causality between Africa’s equity markets, commodities and financial assets. Also, the study sought to determine how these relationships' dynamics have been affected by the COVID-19 pandemic and the Russia/Ukraine disturbances. The study relied on secondary data from DataStream database. To offer a description of the data used for the empirical analysis, plots and tables were used. Furthermore, the study uncovered intricate patterns in the relationships among stock exchanges (GSE, BRVM, NSE, DSE, and JSE) and important variables such as exchange rates (EXC), Bitcoin, gold, cocoa, and crude oil spanning from 2012 to 2023. The use of these equity markets is because of their regional diversity, economic significance and emerging market dynamics. This finding offers valuable information regarding the varying degrees of correlation, interactions with opposing phases, and shifting patterns observed throughout different time periods and frequency ranges. Furthermore, the examination of partial wavelet coherence throughout the COVID-19 period unveiled complex and ever-changing connections among different financial indicators and commodities. The results indicate that there were diverse degrees of correlation and anti-phase dynamics between the Ghana Stock Exchange (GSE) and numerous variables, such as EXC, Bitcoin, Gold, Cocoa, and Crude oil, throughout specific intervals. This study recommends that Financial decision-making methods like Risk management, Diversification, Quantitative modeling and Value investing should carefully analyze the impact of external factors, such as global economic conditions and geopolitical events.