OIL MARKET VOLATILITY AND INVESTMENT IN FINANCIAL MARKETS

Abstract

This research aims to study the impact of oil market volatility on investment in Iraq's financial markets for the period 2010–2024. The Iraq Stock Exchange Index (ISX60) was used as the dependent variable, and the price of crude oil (OP) as the main independent variable. Control variables included the exchange rate (ER), inflation (INF), oil production (OILP), and gross domestic product (GDP). The research employed a descriptive, analytical, and econometric approach, utilizing the ARDL model after confirming the stationarity of the time series and the presence of cointegration. The results showed a significant positive relationship between the oil price and the market index in both the long and short runs, and an inverse relationship between the exchange rate and inflation. Oil production and GDP, however, had a positive impact. The error correction coefficient (-0.61) indicated a rapid adjustment of imbalances toward equilibrium within approximately one year. The model passed all diagnostic tests (no autocorrelation, homogeneity of variance, and normality of residuals). The research recommended diversifying revenue sources away from oil to reduce the financial market's sensitivity to oil price fluctuations by supporting non-oil sectors (agriculture, manufacturing, tourism) and listing their companies on the stock exchange.