“Large” versus “Small” Players: A Closer Look at the Dynamics of Speculative Attacks |
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Authors: | Geir H Bjønnes Steinar Holden Dagfinn Rime Haakon O Aa Solheim |
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Institution: | 1. Norwegian School of Management (BI), , Oslo, NO‐0484 Norway;2. University of Oslo, , Oslo, NO‐0851 Norway;3. Norges Bank, , Oslo, NO‐0107 Norway |
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Abstract: | What is the role of “large players” (e.g., hedge funds) in speculative attacks? Recent work suggests that large players move early to induce smaller agents to attack. However, many observers argue that large players move late in order to benefit from interest‐rate differentials. We propose a model in which large players can do both. Using data on currency trading by foreign (large) and local (small) players, we find that foreign players moved last in three attacks on the Norwegian krone during the 1990s. During the attack on the Swedish krona after the Russian moratorium in 1998, foreign players moved early. Gains by delaying attack were small, however, because interest rates did not increase. |
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Keywords: | Currency crises foreign exchange trading large players microstructure F31 F41 G15 |
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