Measuring the volatility spill-over effects of crude oil prices on the exchange rate and stock market in Ghana

Mutawakil M. Zankawah and Chris Stewart

The Journal of International Trade & Economic Development, 2020, vol. 29, issue 4, 420-439

Abstract: This paper examines shock and volatility spill-over effects from crude oil prices to Ghana’s exchange rate and stock market. We employ multivariate GARCH BEKK and TBEKK models using monthly data from January 1991 to December 2015. We address two main issues. First, whether oil price movements affect Ghana’s exchange rate and stock market. There are very few previous papers that consider the impact of such volatility spill-overs for Ghana and we are the first to do so in a four-variable system of equations. Second, whether any oil price effects depend on the treatment of oil prices as exogenous or endogenous. We are the first to consider specifications that treat crude oil price spill-over effects as exogenous. We find that oil prices have significant spill-over effects on the exchange rate. This result is unaffected by the treatment of oil prices as exogenous or endogenous. However, the relationship between oil prices and Ghana’s stock market depends on whether the oil price is exogenous or endogenous. The implication of these results is that internationally diversified portfolio investors in Ghana should use hedging strategies such as currency forwards, futures, and options to protect their investments from exchange rate risk emanating from oil price shocks.

Date: 2020
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DOI: 10.1080/09638199.2019.1692895

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