The Impact of Micro Factors on the Performance of the Iraq Stock Exchange Index for the Period 2005-2021

Abstract

Purpose:  The purpose of this study is to determine the impact of some micro factors (liquidity and profitability factors) of the Iraqi banking sector in determining the return of the stock market represented by the return of the Iraqi financial market index using time series analysis according to the ARDL methodology for the period 2005-2021.   Design/methodology/approach:  The study adopted an econometrics analysis of time series using the ARDL (auto-regressive distributed lag) methodology for the period 2005-2021 to investigate the impact of some micro factors (liquidity and profitability ratios) in Iraqi banking sector listed in Iraq stock exchange market on market return (Iraq Stock Exchange Index as a benchmark).   Findings:  The results of this study reveal significant effects of the financial factors for micro factor on the Iraqi Stock Exchange index. It is interesting that the variables of banking liquidity showed a stronger logical relationship with the dependent variable in line with financial theory than the variables of banking profitability. The relationship between the micro factors model and the financial market index required a long-term adjustment equivalent to (0.2124) of the time needed to adjust to the balanced state according to the error correction equation.   Research, Practical & Social implications: These results confirm the importance of taking into account micro-financial factors when making financing and investment decisions, as well as when evaluating the economic situation in the Iraqi banking sector. Understanding the impact of these factors and their relationships contributes to decision-making and enhances general forecasting of future economic volatility and risk management.   Originality/value:  This study provides valuable insights into the dynamics of the Iraqi financial market and highlights the importance of incorporating micro-financial factors into financial analyzes and investment strategies. The study recommends that future research should explore the complex links between macroeconomic factors and the financial market to gain a comprehensive understanding of the economic environment.