Abstract:
This study examines the effect of development status in the relationship
between COVID-19 and performance of stock markets using the Bayesian
Structural Time Series and Pooled OLS estimation approaches. The study
further assesses the moderating role of financial globalisation in the volatility
transmission between stock and forex markets during COVID-19 period, using
Panel FMOLS and Panel DOLS estimation techniques. Finally, the study
investigates the moderating role of trade openness in the relationship between
COVID-19 and exchange rate in Ghana, applying the FMOLS and CCR
estimation techniques. The findings revealed that, stock markets in developing
economies were the heaviest impacted, followed by those in emerging
economies, with the ones in developed economies being the least impacted.
Further, the results show a bidirectional volatility transmission between forex
and stock markets, with financial globalisation playing a moderating role in
this relationship. The findings further, provide evidence of trade openness
serving as a conduit in reversing the adverse influence of COVID-19 on the
value of the Ghana cedi. To mitigate the impact of future crisis, risk
management frameworks must be improved. To harness the stabilising
potential of financial globalisation in volatility transmission, asset
diversification, information flow and market efficiency should be promoted in
African financial markets. To ease the pressure on Ghana’s exchange rate,
export-oriented industries must be targeted and supported to generate the
needed foreign exchange.
