Co-movement between equity index and exchange rate: Fresh evidence from COVID-19 era

This paper probes deeper into the co-movement of Ghana's equity index and exchange rate with international equity markets and further determine whether these co-movements are driven by global uncertainties. Also, we sought to determine how the COVID-19 pandemic alters the dynamics of these relationships. We employ the wavelet technique to data from January 19, 2012 to March 1, 2021 to the split between pre-COVID-19 and COVID-19 periods. The results reveal that the dynamics of co-movement or interconnectedness of exchange rate and Ghana Stock Exchange composite index has evolved over time and across frequencies. Besides, the cone of influence, as shown by the wavelet spectrum, does not cover the entire data frequency which suggests that long-term forecast of exchange rate and equity index in Ghana beyond four years could be misleading since significant levels of interdependences are concentrated around the mid-team scales. In addition, we found evidence to support low-medium term lead-lag connections between exchange rate and Ghana Stock Exchange Composite Index in 2013 to 2014 and 2016. Further, the co-movement between exchange rate or Ghana Stock Exchange Composite Index and international equity markets show similarly weak association at all scales. A closer scan of the interdependencies among these variables are more intense during COVID-19 than during the pre-COVID-19 period. Finally, we observe a strong co-movement between the rise in COVID-19 cases and exchange rate at higher frequency scales where exchange rate lags Ghana's equity index and they are out-of-phase.