Measuring and analyzing the role of liquidity in enhancing efficiency in the Iraq Stock Exchange

Abstract

As developing countries suffer from a shortage of local funding sources to support their development projects, these countries, particularly Iraq, have begun to seek new domestic and external sources to advance development levels. These sources include sound investment plans or opportunities that enhance their returns and provide a significant degree of hedge against the variations in the value of these funds due to market factors and laws, and the variables they contain that affect them negatively or positively. Attention has turned to enhancing the efficiency of the stock market, as it is a driver of economic growth that contributes to increasing the productive capacities of the local economy. Given the broad scope of research on an efficient stock market, and given the importance it plays in developing economies receiving it, the research problem is to identify the role of liquidity in the efficiency of the Iraqi Stock Market. Many countries and market administrations, including Iraq, have given special importance to the stock market, putting in place administrative and technical procedures to facilitate and sustain trading. This has had a positive impact on stimulating market performance and raising its efficiency, which has been reflected in increased liquidity and, consequently, an increase in the number of transactions. The research hypothesis is that liquidity plays a role in influencing the efficiency of the Iraq Stock Exchange. The research aims to study the current state of the Iraq Stock Exchange by adopting indicators for the period (2004-2023), and to come up with results and recommendations that help management in both markets understand the nature of the relationship between the components and activities of the stock market and the relationship between both liquidity and efficiency in the market. By adopting indicators of the Iraq Stock Exchange for the period (2017-2022). The study reached a set of conclusions, the most prominent of which were: The relationship between liquidity and random price movements on the one hand, and efficiency on the other, lies in the fact that the more liquid and random the market is, the more efficient it is. The behaviour of the noise team contributes to achieving consistency between liquidity and efficiency. However, the behaviour of the information team demonstrates an inverse relationship between liquidity and efficiency. This has encouraged specialists to intensify efforts to explore the causes and policies that would achieve both liquidity and efficiency in the stock market. The study recommended a set of recommendations, most notably: Developing mechanisms that allow for the provision of information, to increase transparency and disclosure within the market, as well as benefiting from the experiences and expertise of some Arab financial markets that have succeeded in raising their levels of efficiency.