Banking Sector Dominance And Cross-Sectoral Dependencies In The Iraqi Stock Exchange: A Machine Learning And Network Analysis Approach

This study investigates the behavior of different economic sectors, the accuracy of forecasting models, and the interlocking relationships among firms in the Iraqi Stock Exchange 60-index (ISX60)-an effort to fill a major gap in scholarship on emerging markets. Using daily closing prices from 57 firms drawn from seven sectors between January 2015 and December 2024, we combine sector-contribution decomposition, machine-learning and time-series forecasting, and graph-based network analysis into a unified empirical framework. The results reveal a heavily concentrated structure, with the banking segment alone holding nearly 30 percent of total capitalization, followed by industry at 18 percent and services at 15 percent, underscoring both the prominence of financial intermediaries in the country’s growth agenda and the systemic exposures they generate. Forecasting accuracy varies sharply across sectors, and three benchmark models-ARIMA, long short-term memory (LSTM) networks, and random forests-yield distinctly different outcomes. LSTM dominates in highly turbulent groups, achieving a mean absolute error of 0.15 for banks and 0.08 for industry, and shows an ability to learn non-linear, long-horizon dependency. Random forests shine in intermediate-volatility categories, whereas ARIMA still holds ground only in calm, low-dispersion arenas. Network metrics confirm a tight coupling between banking and manufacturing (Pearson r equals 0.8), suggesting that shocks originating in financial losses could spread quickly across key productive nodes during downturns. The evidence presented here enhances the understanding of portfolio diversification, showing that agriculture and insurance can act as effective hedges because their returns move independently of larger sectors. For regulators, the results highlight the need to supervise tightly interlinked industries and, at the same time, to bolster modest-performing fields that matter for long-run stability. By focusing on Middle Eastern emerging markets, this study adds to scarce regional literature and provides actionable insights for investors, policymakers, and analysts who work in frontier-market settings.