Theoretical approaches to data analytics and decision-making in finance: Insights

from Africa and the United States

Wisdom Samuel Udo 1, *, Nneka Adaobi Ochuba 1, Olatunji Akinrinola 2 and Yinka James Ololade 3
1 Independent Researcher, United Kingdom.
2 Independent Researcher, New York, USA.
3 Independence Researcher, Addison, Texas.

GSC Advanced Research and Reviews, 2024, 18(03), 343–349

Publication history: Received on 01 February 2024; revised on 13 March 2024; accepted on 15 March 2024

Article DOI: https://doi.org/10.30574/gscarr.2024.18.3.0114

Abstract
This review paper presents a comparative analysis of theoretical approaches to data analytics and decision-making in
the finance sectors of Africa and the United States. It explores how these approaches are adopted and implemented,
considering each region's unique economic, technological, and regulatory environments. The paper identifies challenges
and opportunities presented by these environments. It examines the influence of cultural and economic factors on the
preference for certain theoretical models. It discusses practical implications for financial analysts, investors, and
policymakers. It provides policy recommendations to foster an environment supportive of effective financial decision-
making practices. The paper also speculates on the future of finance, suggesting areas for further research, including
the empirical validation of theoretical approaches.

Keywords: Data Analytics; Decision-Making; Finance; Africa; United States; Theoretical Approaches

1. Introduction
In an era dominated by big data, the finance sector is a testament to data analytics's transformative power. From
predictive modeling to risk assessment and portfolio management, data analytics has revolutionized financial decisions.
However, the adoption and implementation of these technologies vary significantly across different regions, influenced
by economic, cultural, and infrastructural factors (Özemre & Kabadurmus, 2020; Shield, 2023). In the United States, a
mature financial market characterized by advanced technological infrastructure and a robust regulatory framework has
fostered the rapid integration of data analytics into financial decision-making. Conversely, the financial sector in Africa
is marked by its dynamic growth and diversity, with varying degrees of technological adoption and analytical
sophistication across its markets (Adeniyi, Omisakin, Egwaikhide, & Oyinlola, 2012; Lin, 2011). This preliminary
comparison sets the stage for a deeper exploration of how theoretical frameworks in data analytics are adapted and
applied in the context of these contrasting financial environments.

This research paper aims to delve into the intricate world of data analytics and decision-making within the finance
sector, emphasizing the pivotal role that theoretical approaches play in shaping financial strategies and outcomes. By
undertaking a comparative analysis between African and American financial landscapes, this paper seeks to uncover
how theory underpins practice in diverse economic settings. The primary purpose is to bridge the gap between abstract
financial theories and their practical applications in data-driven decision-making processes, thus offering a
comprehensive perspective on the strategic management of financial data across different regions.


Corresponding author: Wisdom Samuel Udo.
Copyright © 2024 Author(s) retain the copyright of this article. This article is published under the terms of the Creative Commons Attribution Liscense 4.0.
 GSC Advanced Research and Reviews, 2024, 18(03), 343–349

Understanding the theoretical approaches to data analytics and decision-making in finance is paramount for
practitioners and policymakers. These theories offer practitioners a framework for interpreting data, assessing risks,
and making informed financial decisions. For policymakers, they provide insights into the mechanisms of financial
markets and the potential impacts of regulatory measures. Furthermore, by comparing and contrasting these theoretical
approaches in the African and American contexts, this paper contributes to a more nuanced understanding of global
finance, encouraging a cross-pollination of ideas and practices that could enhance financial stability and growth in both
regions. Thus, this research contributes to academic discourse and offers practical insights for improving financial
decision-making processes in an increasingly data-driven world.

2. Theoretical Frameworks in Data Analytics and Decision-Making

2.1. Overview of Theoretical Approaches

The theoretical landscape of data analytics and decision-making in finance is rich and diverse, encompassing a range of
models and frameworks that guide the analysis and interpretation of financial data. Key among these are:

Efficient Market Hypothesis (EMH): EMH posits that financial markets are "informationally efficient," meaning that asset
prices fully reflect all available information. This theory underpins many predictive models used in financial analytics,
suggesting that it is impossible to consistently achieve higher returns on investment through market timing or stock
picking (Lo, 2007; Malkiel, 2011).

Behavioral Finance: Contrasting with the EMH, Behavioral Finance introduces psychological insights into financial
market analysis, acknowledging that investors are not always rational and that cognitive biases can significantly affect
investment decisions and market outcomes (Shefrin, 2002; Singh, 2012).

Portfolio Theory: Originating from Harry Markowitz's work on portfolio selection, this theory focuses on optimizing the
allocation of assets in a portfolio to maximize return for a given level of risk, or to minimize risk for a given level of
expected return (Adeniyi et al., 2012; Markowitz, 1991, 2010).

The Black-Scholes Model: A foundational framework in pricing options and financial derivatives, the Black-Scholes
model facilitates risk management and investment decision-making by providing a theoretical estimate of the price of
European-style options (Karagozoglu, 2022).

The Theory of Constraints (TOC): Though not exclusive to finance, TOC is instrumental in identifying and managing the
most significant limiting factor (i.e., constraint) that stands in the way of achieving a goal, including financial objectives.
This approach is particularly relevant in operational finance and capital budgeting decisions (Gupta & Boyd, 2008; Naor,
Bernardes, & Coman, 2013).

2.2. Evolution of Theories

Technological advancements and the changing landscapes of financial markets have significantly influenced the
evolution of these theories. For instance, the EMH was more widely accepted in its strong form before the advent of
behavioral finance, which emerged from the observation of actual investor behavior deviating from rationality.
Technological advancements have also enabled the development of sophisticated data analytics tools, allowing for more
complex risk management and investment analysis models that incorporate elements from multiple theoretical
frameworks.

The digital revolution has further propelled the development of machine learning and artificial intelligence (AI) in
finance, challenging traditional models with data-driven, predictive analytics that can adapt to new information more
fluidly than static models. This shift highlights a move from purely theory-based decision-making to a hybrid approach
integrating theoretical insights with dynamic, data-driven analysis (Boukherouaa et al., 2021; Mhlongo, Daraojimba,
Olubusola, Ajayi-Nifise, & Falaiye, 2024; Oladipo, Okoye, Elufioye, Falaiye, & Nwankwo, 2024; Olubusola, Falaiye, Ajayi-
Nifise, Daraojimba, & Mhlongo, 2024; Zohuri & Rahmani, 2023).

2.3. Application in Finance

The application of these theoretical frameworks in finance spans various domains, including financial analysis,
forecasting, risk management, and investment decision-making (Beyhaghi & Hawley, 2013; Ho & Lee, 2004; Kayahan &
Murat, 2022; Sharma & Kumar, 2020; Zheng & Chen, 2013):

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Financial Analysis and Forecasting: Theories like EMH and Behavioral Finance inform the development of predictive
models that analyze market trends and investor behaviour to forecast future market movements. Machine learning
models, powered by vast datasets, can detect patterns that traditional theories may overlook, offering more accurate
predictions under certain conditions.

Risk Management: Portfolio Theory and the Black-Scholes Model are central to modern risk management practices,
helping investors and financial institutions mitigate potential losses through strategic asset allocation and the pricing
of derivatives as hedging instruments.

Investment Decision-Making: Theoretical frameworks guide investment strategies, from value investing principles that
seek to exploit market inefficiencies (a challenge to the EMH) to quantitative investing strategies that rely on statistical
models to make investment decisions.

In sum, theoretical data analytics and decision-making frameworks provide the foundational principles that guide
financial practices. Their application, influenced by evolving technologies and market dynamics, continues to shape the
financial landscape, offering challenges and opportunities for innovation in finance.

2.4. Comparative Analysis: Africa vs. the United States

2.4.1. Adoption of Theoretical Approaches

Adopting and implementing theoretical approaches to data analytics and decision-making in the financial sectors of
Africa and the United States present a study in contrast, shaped by each region's unique economic, technological, and
regulatory landscapes.

In the United States, the financial sector is characterized by its maturity, sophistication, and high technological
integration. This environment fosters a broad adoption of advanced data analytics and decision-making theories,
including Behavioral Finance, Portfolio Theory, and the Black-Scholes Model. Financial institutions and markets
leverage cutting-edge technology, including AI and machine learning, to drive investment strategies, risk management,
and market analysis. The regulatory environment, while strict, also supports innovation through clear guidelines that
facilitate the adoption of new technologies and theoretical approaches.

Conversely, Africa's financial sector is marked by its diversity and dynamism, with varying levels of technological
adoption and theoretical application across its countries. The region's emerging markets are characterized by less
mature financial systems and, in many cases, lower levels of technological infrastructure (George, Corbishley, Khayesi,
Haas, & Tihanyi, 2016). However, this landscape offers a fertile ground for mobile banking and fintech innovations,
driven by the need to address financial inclusion and tap into the vast unbanked population. Theoretical approaches in
African financial markets are often adapted to local conditions, emphasizing models that can accommodate high levels
of market volatility and limited data availability. There is a growing interest in theories that support microfinance and
small-scale investments, reflecting the region's economic realities (Bekaert & Harvey, 2003; Gençay, Dacorogna, Muller,
Pictet, & Olsen, 2001).

2.5. Challenges and Opportunities

2.5.1. Challenges
In Africa, the lack of comprehensive, high-quality financial data poses a significant challenge to applying data-driven
theoretical models. In contrast, the United States benefits from abundant data, supporting more sophisticated analytics.
While improving, the technological infrastructure in much of Africa still lags behind that of the United States, affecting
the adoption of advanced data analytics tools and theories. African financial markets often face regulatory uncertainties
or underdeveloped legal frameworks, which can hinder the implementation of new financial theories and technologies.
The U.S., with its well-established regulatory framework, provides a more stable environment for applying theoretical
approaches (Bachmann, Tripathi, Brunner, & Jodlbauer, 2022; Joskow & Noll, 1981).

2.5.2. Opportunities
The challenges in Africa have spurred innovative financial solutions, particularly in mobile banking and fintech, which
are rapidly transforming the financial landscape and offering new opportunities to apply theoretical approaches in
unique ways. Africa's emerging markets offer significant growth potential, providing a unique opportunity to apply
traditional and new theoretical models to drive financial inclusion and development (Addy et al., 2024a, 2024b; Ajayi-

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Nifise, Odeyemi, Mhlongo, & Falaiye, 2024; Akindote, Adegbite, Omotosho, Anyanwu, & Maduka, 2024; Olubusola,
Daraojimba, Ajayi-Nifise, Falaiye, & Mhlongo, 2024).

2.5.3. Cultural and Economic Influences

Cultural and economic factors are crucial in shaping the preference for certain theoretical models over others in both
regions. In the United States, the culture of innovation and a strong emphasis on market efficiency and transparency
support the adoption of theories like EMH and Behavioral Finance. The economic stability and sophistication of the
financial markets also facilitate the application of complex theories and models.

In Africa, cultural diversity and varying economic conditions influence the preference for theoretical approaches
adaptable to local contexts. The emphasis on financial inclusion and the need to address unique market challenges lead
to a preference for theories that support microfinance, informal lending models, and community-based financial
solutions. Economic factors, such as varying levels of development and market maturity, also dictate the applicability of
certain theoretical models, with a growing interest in theories that can drive sustainable growth and development
(Watkins, 1963).

2.6. Implications for Practice and Policy

2.6.1. Practical Implications

The insights derived from theoretical approaches to data analytics and decision-making hold significant implications
for financial analysts, investors, and policymakers across both Africa and the United States. For financial analysts,
understanding these theoretical frameworks enables a more nuanced interpretation of market data, enhancing their
ability to forecast trends, assess risk, and identify investment opportunities. Investors can leverage these insights to
inform their investment strategies, optimizing their portfolios for risk and return in line with the principles of Portfolio
Theory or adapting their strategies based on insights from Behavioral Finance.

Conversely, policymakers can use these theoretical insights to design regulations and initiatives that promote financial
market stability and growth. For instance, policies encouraging transparency and data sharing can help markets move
closer to the ideal of informational efficiency posited by the Efficient Market Hypothesis. Similarly, understanding the
principles of Behavioral Finance can inform consumer protection laws and financial literacy programs that help
individuals make better financial decisions.

2.6.2. Policy Recommendations

To foster an environment that supports effective data analytics and decision-making practices in finance, policymakers
in both Africa and the United States could consider the following recommendations:

 Implement policies that improve data collection, sharing, and privacy, ensuring financial analysts can access
high-quality, comprehensive data sets to inform their analyses.
 Encourage the adoption of advanced analytical tools and technologies through incentives for innovation,
investment in technological infrastructure, and support for fintech startups.
 Develop clear, flexible regulatory frameworks that can adapt to technological advancements and changing
market dynamics, ensuring that new theoretical approaches can be implemented effectively and responsibly.
 Invest in financial education and literacy programs incorporating theoretical insights to help individuals make
informed financial decisions.
 Encourage collaboration between financial institutions, regulatory bodies, and academic researchers across
regions to share insights, best practices, and innovations in theoretical and practical applications of finance.

2.6.3. Future of Finance

The future of financial decision-making in Africa and the United States is likely to be shaped by evolving theoretical
approaches that increasingly incorporate data analytics, artificial intelligence, and machine learning. These technologies
offer the potential to refine existing theories and develop new models that better account for complex market dynamics
and investor behaviors.

In the United States, the integration of these technologies with traditional financial theories could lead to more
sophisticated risk management tools, enhanced predictive models, and personalized investment strategies. The
challenge will be to ensure that these advances are accessible to all market participants and that they contribute to
market transparency and stability.

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In Africa, the future of finance may see a convergence of traditional financial practices with innovative fintech solutions,
driven by the need for financial inclusion and sustainable development. Theoretical approaches that can adapt to the
region's unique challenges and opportunities—such as those supporting microfinance, mobile banking, and community-
based savings and loans—will play a crucial role in shaping this future.

Overall, the evolving theoretical landscape in finance promises to enhance decision-making processes, offering more
precise, dynamic, and inclusive financial services. However, realizing this potential will require ongoing collaboration
between practitioners, policymakers, and academics to ensure that theoretical advancements translate into practical
benefits for all.

3. Conclusion
This paper analyzed theoretical approaches to data analytics and decision-making in the financial sectors of Africa and
the United States, revealing distinct practices influenced by each region's unique economic, technological, and
regulatory landscapes. In the United States, the financial sector's maturity and technological sophistication facilitate the
broad adoption of advanced analytical and decision-making theories. Conversely, Africa's diverse and dynamic markets,
characterized by varying levels of technological infrastructure and financial system maturity, adapt and apply these
theories within the constraints of local conditions, often leading to innovative solutions in mobile banking and fintech.

The analysis highlighted key challenges, including data availability and technological infrastructure in Africa and
regulatory environments in both regions, which influence the application of theoretical approaches. Additionally,
cultural and economic factors significantly impacted the preference for and effectiveness of these theoretical models
across different financial contexts.

Future research could build on this paper's foundational comparative analysis by incorporating empirical
methodologies to validate the discussed theoretical approaches. Exploration of specific case studies across both regions
could offer deeper insights into how these theories are applied in practice, highlighting successes, challenges, and
adaptations necessary in different economic and cultural contexts. Additionally, further studies could examine the
impact of emerging technologies and evolving financial models on the adoption and effectiveness of theoretical
approaches in finance, potentially identifying new directions for theory development and application. This paper sets
the stage for a continued exploration of the intersection between theory and practice in financial decision-making,
encouraging a nuanced understanding of how theoretical approaches can be adapted and applied across diverse global
financial landscapes.

Compliance with ethical standards

Disclosure of conflict of interest

No conflict of interest to be disclosed.

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