Measuring and Analyzing the Impact of Exchange rate Changes on the Volume of Trading In the Iraq Stock Exchange

Abstract

Stock markets are influenced by a number of
variables, encompassing exchange rates, oil prices, and
interest rates. Of particular significance is the relationship
between exchange rates and the stock market. This research
aims to quantitatively measure and analyze the influence of
Iraqi dinar devaluation on trading volume within the Iraqi
Stock Market. To achieve this objective and prove its
hypotheses, the study employs an econometric model
(ARDL) by leveraging secondary monthly data for variables
such as Exchange Rate, Oil Price, Interest Rate, and the
impact of the Corona virus. The data is divided into two
periods: a two-year span before the dinar devaluation
(1/1/2018 to 30/12/2020), and a year and a half after the
devaluation (1/1/2021 to 1/7/2022).
The study's findings reveal that the impact of fluctuating
exchange rates on the Iraqi stock market is positive both in
the short and long terms. Notably, this effect becomes more
pronounced post the decision to devalue the Iraqi dinar,
underscoring a clear and direct consequence of the policy
pursued by the Central Bank of Iraq in altering the domestic
currency's relation with the US dollar. In conclusion, the
study puts forward a set of recommendations. It emphasizes
the necessity for the Central Bank of Iraq to move away from
a direct peg of the local currency solely to the US dollar; as
such a strategy leaves the economy vulnerable to economic,
financial, political, and health-related shocks. Instead,
adopting a more flexible exchange rate policy by pegging the
local exchange rate to a basket of foreign currencies is
suggested. This approach holds the potential to bolster the
Iraqi stock market, fostering economic growth within Iraq.