Naira’s Wild Ride: Decoding Daily Exchange Rate Volatility in Nigeria

This study investigated the volatility and daily exchange rate movements of the Nigerian Naira against the US Dollar, focusing on the factors influencing volatility dynamics. Using daily exchange rate data from May 29, 2015 to November 17, 2024, obtained from Central Bank of Nigeria Publications. Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model was employed to analyze volatility persistence and asymmetry effects. It was discovered that there is volatility in the Nigerian exchange rate market. The asymmetry parameter was found to be positive and significant level, suggesting good news magnify volatility more than bad news of the same magnitude in the foreign exchange market in Nigeria within the scope of the study. It was also found that the conditional volatility (capturing the exchange rate-volatility relationship) was negative and significant. This shows that investors or speculators in the foreign exchange market are not adequately rewarded for taking additional risk The persistent parameter was found to be significant, suggesting volatility in exchange rate price between Naira and US Dollar is persistent. The Central Bank of Nigeria should initiate measures to forestall the persistent rise in the price of exchange rate experiencing in Nigeria, which has made the exchange movement become volatile and predictable. Again, panic buying should be discouraged since the market volatility persistent takes a little time to decay.