The Impact of Exchange Rate Volatility on the Liquidity of the Damascus Securities Exchange An Applied Study for the Period 2011–2025

Abstract

This study aims to analyze the impact of exchange rate volatility on the liquidity of the Damascus Securities Exchange during the period (2011–2025) using quarterly data. Exchange rate volatility was measured using logarithmic returns and estimated through the EGARCH(1,1) model, while market liquidity was measured using the turnover ratio and the Amihud illiquidity measure. The study relied on the Vector Autoregression (VAR) model to analyze the relationship between the variables, in addition to the Granger causality test to identify the direction of the temporal relationship between them. The results revealed the existence of an effect of exchange rate volatility on stock turnover, indicating that exchange rate fluctuations influence trading activity through lagged time periods, while no significant effect was found on the Amihud illiquidity measure. The Granger causality test also showed a unidirectional causal relationship running from exchange rate volatility to stock turnover, with no causal relationship detected with the Amihud measure. The findings further indicated that the impact of exchange rate volatility on market liquidity is limited and unstable, and that weak liquidity is associated with structural factors such as limited market depth, sectoral concentration, and the diversion of liquidity toward alternative investments outside the formal market. The study recommends expanding the base of listed companies, improving the investment environment, and conducting future research using higher-frequency data and additional variables.