If you are reading newspapers for the last few days, you must have observed the contrary nature of stock market in USA , to what the present society and economy, in reality, is experiencing. After few hiccups, the stock market is soaring high again.
So, what could seem like the developing world phenomenon, as was discussed in the article with respect to India, it actually seems like a world- wide phenomenon. Paul Krugman has said on many occasions that, the stock market is not the real economy and, its actually, not representing the actual state of economy.
Stock markets – the market of psychology
Emotions, anxieties, melancholy, etc., can very well be estimated in the stock market indexes. Just at the time, when pandemic appeared on the world platform in true sense, the phenomenon of anxiety and dismay prevailed in the society. This was the phenomenon, common in most cases, for the developed as well as for the developing nations. This was well asserted by Amartya Sen in an interview recently, where he stated by reaffirming the words of Arthur Pigou that the state of psychology is very important for the stock market.
Just take the case of S&P 500. It was bottomed out on the advent of pandemic, and then, made a remarkable comeback. Albeit, some would argue that Fed played the role of catalyst in this remarkable recovery of the index. But whatever might be the reason, the point is, the stock market soared.
Stock markets is not an indicator of development of a nation?
From the observations and hunches, that we are experiencing at present, it looks like so. In addition, the stock markets around the world move in tandem. So far, it seems so. But then, it brings out another important question. The stock market is benefiting only a few, at the expense of many?
Stock markets and inequality
If the index of the market is moving north, this is definitely a sign of the enhancement in income level, but, not for all, just for the few. So, stock market perpetuates and foster inequality? Yes. It is. But the level of inequality is stark in developing nations as compared to the developed nations. This is due to the simple fact that,the proportion of people who make investment in the stock markets is high in case of the developed nations in comparison to the developing nation. Apart from this, the stock markets in the developing nations needs reconstruction so as to gain improvement in efficiency in stock market as explained by Parmendra Sharma and Eduardo Roca in their paper on “It is Time to Re–examine the Role of Stock Markets in Developing Economies!“.
Moreover, the inequality is not only in-between the participants and the non-participants, but also within the participants, as shown by Hong, Bian, and Lee in their paper on “COVID-19 and instability of stock market performance: evidence from the U.S.”. The paper also asserted that the pandemic crisis created profitable opportunities for traders and speculators. But, no doubt, in general, the pandemic has lead to harmful consequences for the financial markets.
In the words of Amartya Sen, ” An intelligent economist has to look at the stock market, not as something valuable in itself, but as something, which has an instrumental role in the performance of the economy”.