Measuring and Analyzing the Impact of Monetary Policy and Political Stability on Stock Turnover in the Iraq Stock Exchange for the Period 2004–2023

Abstract

Abstract:
The stock turnover ratio is one of the most prominent quantitative indicators reflecting the efficiency and liquidity of financial markets. It serves as a vital metric for analyzing investor behavior and the market’s effectiveness in converting savings into investments. Within the context of the Iraqi economy—characterized by structural volatility and intertwined political and economic risks—the analysis of this indicator becomes particularly significant in light of macroeconomic and political determinants. This study aims to measure and analyze the impact of monetary policy—represented by the interest rate, exchange rate, broad money supply (M2), inflation rate, and the ratio of reserves to (GDP)—alongside political stability, on the stock turnover ratio in the Iraq Stock Exchange during the period from 2004 to 2023. The study utilizes quarterly data to enhance the precision of the analysis and adopts a quantitative econometric approach by applying the Autoregressive Distributed Lag (ARDL) model to assess both short-run and long-run relationships between the independent variables and the dependent variable.

Prior to estimation, several diagnostic tests were conducted, including unit root tests to verify stationarity, the bounds test for cointegration to identify long-term equilibrium relationships, as well as tests for structural stability and model forecasting performance. The estimation results revealed statistically significant relationships, most notably a positive long-run relationship between the stock turnover ratio and the interest rate, reserves-to-GDP ratio, and political stability. Conversely, the findings showed a negative relationship between the stock turnover ratio and the exchange rate, inflation rate, and broad money supply (M2), indicating the market's vulnerability to liquidity fluctuations and the limited effectiveness of monetary policy in stimulating trading activity in an unstable economic environment. Furthermore, the results underscored the critical role of political stability in enhancing market confidence. Improvements in political stability lead to increased trading activity, attract investment, and boost the efficiency of the financial market. The study concludes with several implications that may assist policymakers in improving the efficiency of the Iraqi financial market. These include restructuring monetary policy tools to align with the characteristics of the local economy, activating financial and administrative reform systems to strengthen investor confidence, and reinforcing political stability as a fundamental pillar for achieving economic balance and revitalizing trading in the Iraqi financial market.