Does History (Financial) Repeat Itself? An Evaluation of Price Manipulation and Volatility in Two Emerging Markets in Asia

Abstract

This abstract was created post-production by the JFI Editorial Board.

In this study we describe the interplay of regulatory adaptation and market forces in two emerging markets in South Asia, namely, India and Pakistan, which lend themselves especially for comparative analysis due to commonalities in institutional structures and traditional financial instruments and practices. The two markets share a common genesis, a common civil code, and similar cultural and regulatory environment. In recent times the two markets have had their own cycles of boom and bust, periods of superlative growth as well as of sharp decline and volatility. We draw comparisons between the regulatory response to financial scandals, speculation and volatility and its effectiveness in achieving declared objectives regarding market. We study episodes of speculative market behavior and regulatory response in India and Pakistan; two episodes in the former and one in the later. In these periods allegations of massive speculation, manipulation and scandals led to political pressures on the regulators to phase out a traditional institution common to the two countries, that is, of "badla" or Carry-Over-Trade (COT) financing.