Frontier markets have become increasingly investible, providing diversification opportunities; however, there is very little research (with conflicting results) on the relationship between Foreign Exchange (FX) and frontier stock markets. Understanding this relationship is important for both international investor and policymakers. The Markov-switching Vector Auto Regressive (VAR) model is used to examine the relationship between FX and frontier stock markets. There are two distinct regimes in both the frontier stock market and the FX market: a low-volatility and a high-volatility regime. In contrast with emerging markets characterised by “high volatility/low return”, frontier stock markets provide high (positive) returns in the high-volatility regime. The high-volatility regime is less persistent than the low-volatility regime, contrary to conventional wisdom. The Markov Switching VAR model indicates that the relationship between the FX market and the stock market is regime-dependent. Changes in the stock market have a significant impact on the FX market during both normal (calm) and crisis (turbulent) periods. However, the reverse effect is weak or nonexistent. The stock-oriented model is the prevalent model for Sub-Saharan African (SSA) countries. Irrespective of the regime, there is no relationship between the stock market and the FX market in Cote d’Ivoire. Our results are robust in model selection and degree of comovement.

The Theory demonstrates that oil price and oil volatility (OVX) are significant determinants of economic activity; however, studies seldom consider both variables in the oil–exchange rate nexus and ignore the distributional heterogeneity of the exchange rate. We investigate their joint effect and employ both the quantile regression and Markov switching models to address this. We differentiate between positive/negative shocks and control for the effect of the global financial crisis in 2008 and the COVID-19 pandemic in 2020. We observe that OVX shocks significantly impact the exchange rate for all countries whereas, oil price shocks only affect the exchange rate of oil importing countries. Rising (falling) OVX causes the local currency to depreciate (appreciate). The impact of rising or falling OVX is the same for oil importing and oil exporting countries whereas the impact of rising and falling oil price varies. The impact of oil price and OVX on exchange rate is affected by market conditions. The exchange rate responds to oil price and OVX mostly at lower quantiles (bearish markets) for all countries, which reveals investors sensitivity. In contrast, a weak to no significant response is observed at the higher quantiles (bullish market). Our results are robust in model selection (Markov switching models).