Examining the currency-equity nexus in frontier African markets: a wavelet-based approach

Genevieve Gyasi, Joseph Magnus Frimpong and Kwame Mireku

Cogent Economics & Finance, 2024, vol. 12, issue 1, 2399947

Abstract: This research examines the co-movement between exchange rates and equity prices in a selection of frontier African markets (Ghana, Mauritius, and Tunisia). The analysis encompasses data from 4 January 2010 to 31 March 2023. Employing advanced econometric techniques, the study investigates the interconnectedness of frontier markets and the direction of volatility spillovers between currency and equity markets. Our findings revel that Ghana, Mauritius, and Tunisia are characterized by strong sensitivity to price variations and high volatility. Moreover, significant volatility transmission and spillover effects are observed across the selected markets. Finally, the analysis finds the presence of non-linear dynamics in both the time and frequency domains. In light of these findings, policymakers and investors should incorporate the potential for abrupt and persistent changes, as well as volatility spillovers, into their decision-making processes when considering investments in the Ghana, Mauritius, and Tunisia markets. This research is anticipated to contribute to the development of more robust investment strategies for managing risk exposure within diversified portfolios.This study investigates the relationship between currency and equity markets in frontier African economies using a wavelet-based approach. Focusing on Ghana, Mauritius, and Tunisia, it uncovers significant volatility spillovers and complex, time-varying dynamics. The findings reveal non-linear market behaviors, emphasizing the need for adaptive investment strategies in these volatile regions. By offering deeper insights into the currency-equity nexus, the research provides valuable guidance for investors and policymakers, enabling more informed decision-making and the development of resilient strategies for managing risks in frontier African markets.

Date: 2024
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DOI: 10.1080/23322039.2024.2399947

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