Financial crisis and its impact on emerging economy financial markets

Abstract

“The world is small “has come to be a reality. With increased trade among various countries, the interdependence of one over the other has further enhanced. However it was assumed that the advanced countries were highly correlated (interdependent) among themselves and the activities or events that take place in these countries have minimum or least impact on the developing and the under developed economies. The major purpose of this study was to understand how the developed economies are correlated with the developing economies and to what extent the events taking place in those countries impact the later. Stock markets are an efficient means to understand the relationship between the countries as most countries these days are global in nature (have offices across the world, listed in various stock market indexes and are selling their products in most of the nations). Any activity in a nation impacts the socio economic activity in the region and hence the performance of the companies which in-turn have impact on its subsidiaries and markets in other nation. Thus stock markets form an efficient means to understand the level of transfer of any crisis from one nation to other. More importantly this will show how much is the world interconnected. During various crisis situations like the HONGKONG crash of 1987, NASDAQ crash in 2000 not only was the country where the crisis arose was in doldrums but led to a panic across all the countries. Hence it becomes essential to understand the kind of events which cause more panic.