Dynamics of South Asian Stock Exchanges and Their Global Interactions During and After the Financial Crisis

Abstract

This paper investigates the movement of stock exchanges in South Asia while also examining their interactions with the stock markets of Singapore and the United Kingdom during three distinct phases: before, during, and after the financial crisis spanning from 2007 to 2019. The analysis seeks to understand how the financial crisis influenced stock market dynamics within South Asian countries and how these markets correlated with the performance of more established markets such as those in Singapore and the UK. The findings of this research could help illuminate the extent to which external factors from developed markets impact emerging markets, particularly in times of economic stress. Additionally, understanding these dynamics may offer valuable lessons for investors, policymakers, and financial analysts regarding the interdependencies of global stock markets and the potential spillover effects during financial crises. The data reveal that the global financial crisis significantly strengthened the linkages among South Asian stock exchanges. Prior to the crisis, India was the primary influencer on other South Asian markets, indicating that its stock market movements had a dominant impact on the region. However, in the aftermath of the crisis, this dynamic evolved, as not only India but also other South Asian countries began to exert influence on one another's markets. This shift suggests a growing interconnectedness among these markets, where movements in one country could affect others, reflecting a more integrated regional market environment. Interestingly, the findings indicate that the United Kingdom did not have any influence on South Asian stock exchanges before, during, or after the global financial crisis. This lack of influence may point to a divergence in market behaviors, suggesting that South Asian markets operated more independently of the UK's financial fluctuations during these periods. On the other hand, Singapore’s role as an influencer emerged after the crisis, specifically impacting Sri Lanka's stock market. This shift highlights how the crisis may have altered the dynamics of market influence in the region, with Singapore becoming a more significant player in the post-crisis environment. This evolving interconnectedness emphasizes the need for investors and policymakers in South Asia to consider the implications of these linkages in their strategic decision-making, particularly in times of economic uncertainty.