Abstract:
This study examines the degree of interconnectedness between stock returns and exchange rates, and the influence of some uncertainty indices on such a relationship within a time-frequency domain in West Africa. The study adopts a quantitative research approach and an explanatory research design. Monthly observation of one hundred and five, from 1st March 2013 to 1st December 2021 is utilised. The wavelet approaches are employed in executing the purpose of this study. The findings reveal that, in West Africa, a negative correlation exists between stock return and currency rate. The partial wavelet coherence results indicate that global economic policy uncertainty, oil market implied volatility and the United States volatility index are key drivers of the comovements in the selected markets. Again, the study finds that the degree of integration among stock returns and currency rates in West African economies increases in the long-term when implied volatility indices are included in the multiple wavelet approach. It is suggested that investors who want to hedge against stock return fluctuations can do so using exchange rate. Also, policymakers and investors should consider the impact of external uncertainty measures in the formulation of policies regarding exchange rates and stock return integration at various investment horizons.
