Covid-19 Pandemic And Financial Markets’ Performance: The Role Of Development Status, Financial Globalisation, And Trade Openness

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.