Financial liberalisation and stock market behaviour: experiences of India and select Asian countries

Abstract

Equity markets of many Asian countries are suffering from the menace of over• speculation and excessive price fluctuation in the post liberalisation period. The phenomenon contradicts the assumption of financial liberalisation hypothesis that predicts a decrease in volatility following liberalisation and discounts its macroeconomic effect. If the present unrulybehaviour of markets continues, it might lead to &equent fi:nancial crisis and misalloc:ation of savings and invesbnent to the detriment of real sector growth and stability. Policy makers must work out a plan to stop this menace, otherwise capital market would simply benefit unscrupulous speculators at the cost of the economy at large.