Time–Frequency Connectedness Between Oil Price Shocks and Stock Returns Under Bullish and Bearish Market States: Evidence from African Oil Importers and Exporters

Shocks in the international crude oil prices can significantly influence financial markets globally, particularly in oil-dependent economies. However, the sensitivity of immature African stock markets in net oil importing and exporting nations to different kinds of oil shocks has been ignored in extant literature. This paper investigates the connectedness and spillover between oil price shocks (demand, supply, and risk) and African stocks while jointly considering the market states, time horizons, and time-varying nature of the two markets. Employing Ready’s technique and quantile time–frequency connectedness approach, the study reveals that oil demand, supply, and risk shocks exert varying spillover impacts on African stock returns with respect to market states and time scales. The overall connectedness under the bearish state in the long term is relatively higher compared to the bullish state. The net transmission effects from oil price shocks to African stock returns are exhibited in the long-term (above 5 days), not in the short-term (1–5 days). Oil exporters (Nigeria, Egypt, and Tunisia) are more vulnerable to oil price shocks than oil importers (except Tanzania). These results provide crucial implications for investors, policymakers, and other stakeholders to make well-informed decisions.