Regulatory Response to Market Volatility and Manipulation: A Case Study of Mumbai and Karachi Stock Exchanges

This study examines the regulatory intervention in India and Pakistan in response to episodes of excessive market volatility and manipulation and its effectiveness in achieving declared objectives. Our empirical analysis indicates that while the Indian regulatory agencies seem to have achieved their objectives in curtailing manipulative and speculative behavior, there appears to be little impact on such behavior in the case of the Karachi Stock Exchange. Significant differences in the regulatory effectiveness and industry structure may explain the difference in the market behavior outcomes following regulatory interventions. A stronger competitive environment in India, because of the existence of multiple organized exchanges, seems to facilitate effective enforcement of public policy.