Test for Autoregressive Conditional Heteroscedasticity in Naira/US Dollar Exchange Rate in Nigeria

Emenike Kalu O.^1, and Peter Ifeanyichukwu Ali²

¹Department of Banking and finance, Rhema University Aba, Abia State, Nigeria

²Department of Financial Management Technology, Federal University of Technology Owerri, Imo State, Nigeria

Cite this paper:
Emenike Kalu O. and Peter Ifeanyichukwu Ali. Test for Autoregressive Conditional Heteroscedasticity in Naira/US Dollar Exchange Rate in Nigeria. International Journal of Econometrics and Financial Management. 2016; 4(1):11-16. doi: 10.12691/ijefm-4-1-2

Abstract

The objective of this paper is to analyse the behaviour of Naira/US$ exchange rates in Nigeria. Specifically, the paper examines the descriptive statistics of Naira/US$ exchange rates and whether the series follow autoregressive conditional heteroscedastic (ARCH) using monthly data sample covering January 2000 to December 2013. The estimates from descriptive statistics show that the official market exchange rate in Nigeria is negatively skewed with platykurtic distribution. The Jarque-Bera statistics support evidence of non-normality in the Naira/US$ exchange rate series. The results of the augmented Dickey-Fuller (ADF) unit root tests suggest that the series contain unit root at level but are stationary at first difference. Estimates from the ARCH tests show that official market exchange rates in Nigeria are heteroscedastic. This implies that ARCH family models are appropriate for modeling volatility exchange rate in Nigeria.

Keywords:
exchange rates descriptive statistics heteroscedasticity ARCH model Nigeria

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