Can crude oil price returns drive stock returns of oil producing countries in Africa? Evidence from bivariate and multiple wavelet

ABSTRACT

We examine the time-frequency lead-lag relationships and degree of integration between crude oil price returns and stock returns of six oil-producing countries in Africa – Nigeria, Egypt, Ghana, Tunisia, South Africa and Morocco. The study employs daily data from January 2011 to October 2020, inclusive of the COVID-19 pandemic period, using bivariate and multiple wavelet. Generally, there is low interdependence between crude oil price returns and stock returns. We advocate that in periods of crude oil price shocks on other stock markets, African stocks provide diversification opportunities. Thus, a portfolio with African stocks offers immunity to global oil price shocks.

KEYWORDS:

• Multiple correlations
• comovements
• lead-lag relationships
• financial market integration
• portfolio diversification
• Covid-19 pandemic

Acknowledgment

Our heartfelt thanks are to the editor and the reviewers for their very helpful comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Emmanuel Asafo-Adjei

Emmanuel Asafo-Adjei is a postgraduate student at University of Cape Coast, Ghana, at the Department of Finance. His primary research interest is in market integration and asymmetries.

Anokye M. Adam

Professor Anokye M. Adam is a Professor of finance at the Department of Finance, University of Cape Coast, Ghana. He has many years of experience in lecturing, University management and has published many research papers in refereed journals.

Patrick Darkwa

Mr. Patrick Darkwa is a lecturer at University of Cape Coast, Ghana, at the Department of Accounting. He has earned several years of teaching experience, and has contributed immensely to academics.