EXAMINING THE EFFECT OF PRICE VOLATILITY AND FOREIGN CURRENCY EXCHANGE ON TRADING LIQUIDITY: CROSS-COUNTRY ANALYSIS USING PANEL ARDL APPROACH

Abstract

This study aims to examine the effect of stock price volatility on trading liquidity by involving the domestic currency exchange rate against the United States Dollar (USD). The observation period was determined from January 2014 to March 2025 with weekly data frequency. The markets selected as research subjects came from three countries: Indonesia, Turkey, and Saudi Arabia. The data collected consisted of individual stock prices in these three capital markets, which have large capitalization and high liquidity. The other data are trading volume and the domestic exchange rate of the three countries against the USD, namely IDR, TRY, and SAR. The technique used to analyze the association between these variables was the ARDL Panel approach. The results indicate that stock liquidity is negatively affected by price volatility and positively affected by the exchange rate during the same period. In addition, the interaction variable of volatility and exchange rate shows a positive sign on stock liquidity. Based on these results, investors should choose stocks with low volatility and seek momentum when the domestic currency weakens so that their shares can be easily and quickly transacted.