Oil price uncertainty, exchange rate volatility, and African stock markets: A nonparametric quantile-on-quantile analysis

Given that crude oil is priced in U.S. dollars (USD) on the international market, exchange rate fluctuations can dampen or amplify the transmission effects from oil prices to stock markets, particularly in non-USD economies. Using quantile regression (QR) and nonparametric quantile-on-quantile (QQ) regression models, this study examines the impact of oil price uncertainty OVX on stock returns in African oil-importing and exporting countries, accounting for the moderating role of exchange rate volatility. Findings reveal that OVX exerts a heterogeneous and negative effect on African stock returns, with oil-importing nations experiencing more pronounced impacts than their oil-exporting counterparts. In addition, results indicate that OVX significantly affects African stock returns at moderate and high levels, but not at low levels, suggesting an asymmetry among the quantiles of OVX. Furthermore, the impact is found to be stronger during bearish market conditions than in bullish ones, emphasizing asymmetry across conditional quantiles of stock returns. Moreover, the joint variability of OVX and exchange rates has a substantially greater influence on African stock returns than OVX alone, regardless of the market state. This study offers important insights for investors, policymakers, and other stakeholders.