BIG DATA AND EXCHANGE RATE EFFICIENCY IN NIGERIA: ANY ROLE FOR INVESTMENT SENTIMENTS?

Abstract

The efficiency of the exchange rate is a strong indicator to determine appropriate exchange rate returns. This study engages the use of big data to investigate exchange rate efficiency in Nigeria and further examine the role of investment sentiments. The study employs both the unit-root and variance ratio tests. Also, the granger causality test was employed to investigate the direction of causality. The data spanned 4,992 daily observations each for exchange rate and investment sentiments and cover the daily period 12/10/2001 – 5/13/2022. For further interrogation, quarterly and yearly data frequencies of these two variables were employed in order to explain the varieties of big data. With recourse to the effect of big data, results show that the exchange rate exhibits a random walk behaviour in Nigeria only for daily and quarterly data frequencies and not for the yearly data frequency. However, the causality test indicates that investors' speculations do not affect exchange rate dynamics in the country. As the exchange rate is found efficient in Nigeria, the monetary authority is enjoined to promote real-time information about the exchange rate to deflect undue speculations by investors. This study implies that the monetary authority in Nigeria should model exchange rate efficiency around its intrinsic data-generating process.