Testing for spillovers in naira exchange rates: The role of electioneering & global financial crisis

This study offers a new dimension to the analysis of spillover transmission in foreign exchange markets by accounting for the role of electioneering in addition to the global financial crisis. It does so by using Nigeria as a case study whose electioneering activities seem to be characterized by “money bags†with attendant effects on the behaviour of its domestic currency (Naira). Thus, the study tests for spillover transmission among Nigeria’s six most traded currencies namely the US Dollar, Euro, Pound Sterling, Yen, Swiss Franc and the West African Unit of Account (WAUA). Data utilized involve daily frequency over the period of 2001 to2015 and is partitioned into sub-samples on the basis of the electioneering periods in Nigeria and global financial crisis. The novel approaches of Diebold and Yilmaz (DY) (2009, 2012) are employed to compute the spillovers. The results show that electioneering process in Nigeria appears to have greater spillover effects on the naira than the global financial crisis and this finding is robust to alternative measures of exchange rates. Some implications of the findings to investors and policy makers are documented.