Modelling the heterogeneous relationship between the crude oil implied volatility index and African stocks in the coronavirus pandemic. (December 2021)

• Record Type: Journal Article
• Authors: Boateng, Ebenezer; Adam, Anokye M.; Junior, Peterson Owusu
• Is Part Of: Resources policy. Volume 74(2021)
• Publication Date: 2021-12
• Subjects: Oil implied volatility -- Stock returns -- Quantile regression -- Oil-importing -- Oil-exporting -- Africa -- Competitive market hypothesis; C21 -- G01 -- G15; Mines and mineral resources -- Periodicals; Ressources minérales -- Périodiques; Ressources naturelles -- Gestion -- Périodiques; Environnement -- Politique gouvernementale -- Périodiques; 333.8
• DOI: 10.1016/j.resourpol.2021.102389
• Languages: English
• ISSNs: 0301-4207

Abstract

Abstract: This paper revisited the crude oil – stock market nexus to examine how the oil implied volatility index (a forward-looking and more accurate measure for uncertainty in oil prices) affects stock returns in major Africa's oil-importing (South Africa, Kenya, Mauritius, and Botswana) and oil-exporting (Nigeria, Egypt, Tunisia, and Morocco) countries during the COVID-19 pandemic. Quantile regression is employed to examine the heterogeneous relationship at different distributions of stock returns. The study documents evidence to support a negative relationship between the oil implied volatility shocks and stock returns in the selected stock markets, especially in downturns. Findings from this study also reveal that the oil implied volatility shocks can asymmetrically influence Africa's stocks. Specifically, our empirical evidence reveals that positive shocks in the oil implied volatility index play a key role in most of Africa's stock markets in market downturns while negative shocks play a moderate role during benign market conditions in some of Africa's stock markets during the pandemic. More importantly, our findings divulge that investors can find an invaluable shelter with a portfolio of the selected African stocks and oil market securities in the time of the pandemic. The policy implications are further discussed. Highlights: Crude oil implied volatility index exhibits a negative influence on the selected African Stocks. The negative relationship at downturns is largely driven by positive shocks (increased uncertainty) in the crude oil market. Negative shocks from the crude oil market only play a moderate role in the pandemic at benign market conditions. Investors can find shelter with selected Africa's stocks and oil market securities in the COVID-19 pandemic.