Abstract:
Financial markets are integrated and are continually experiencing asymmetry.
With market integrations, investors have capitalised on commodities to diversify
against risks. There are extensive findings showing the connectedness of
financial assets and commodities. This relationship however has also been
proven to be asymmetric probably based on investors‘ sentiments. As such, this
study sought to explore the role of investor sentiment (VIX and OVX) on the
relationship between crude oil returns and 15 African stock market returns using
daily data from January 12, 2012 to August 3, 2023. To answer the research
objectives, a post-positivist philosophy, quantitative approach and explanatory
design were adopted consequently. Because of the asymmetric nature of
investors, the bi-wavelet and partial wavelet analyses were adopted to explore
the time-frequency nature of such a relationship. The study revealed a strong
integration between crude oil prices and African stock markets, where changes
in oil returns significantly impacted market performance. Investor sentiment
played a key role, with positive sentiment amplifying gains during rising oil
prices and negative sentiment intensifying losses during declines. The
relationship was found to be varying and asymmetric over time, affecting
countries differently based on their oil dependency. Oil-exporting nations
experienced more direct benefits, while oil-importing countries faced negative
impacts, especially in energy-reliant sectors. Given the multifaceted interactions
between investor sentiment, crude oil returns, and stock returns in African
markets, it is essential for investors, policymakers, and market participants to
take a comprehensive approach that combines both financial and behavioural
perspectives.
