Testing the Relationship between Trading Noise and the Performance of Financial Markets: A Case Study on the Iraqi Stock Exchange

Abstract

The objective of this study is to examine the greatest number of behavioral variables for the financial markets, whether they are independent or intertwined. Additionally, the most significant effects that these behaviors are likely to have on the performance indicators of the Iraqi Stock Exchange are highlighted. To reach this goal, the study posed the following question: "Can models of financial behavior and its variables, including noise trading, explain the changes in the behavior of capital markets, specifically the Iraq Stock Exchange?". The Iraqi Stock Exchange market took an intentional sample to study the phenomenon of noise trading for the duration (2010-2020) which was observed on a monthly basis and for two separated time periods. To analyze the data, the study adopted (ARDL) and the program Eviews version 10 was used. The research concluded that the first period proved the existence of a long-term equilibrium relationship between noise indicators and recorded price indicators. While it became apparent in the second period that the noise indicators were more precise than in the first, the number of shares traded and the turnover rate were among the most influential noise indicators. The research emphasized the need of monitoring all performance indicators and trading for the market as a whole, as opposed to depending on a subset of indicators and for brief intervals.