Experimental analysis on the role of a large speculator in currency crises

Corsetti et al. (2004) demonstrate that the presence of a large speculator in the foreign exchange market makes the remaining traders more aggressive in their speculative attacks. We conduct an experiment designed to test their theoretical predictions and also use the experiment to analyze an additional aspect that has not been previously covered in the literature: namely, whether the entry of a large speculator and the exit of the same speculator have the same effect in magnitude on the probability of a successful speculative attack. We obtain two main findings. First, the results support the main conclusion of Corsetti et al. (2004) that the presence of a large speculator makes other small speculators more aggressive. Second, the results suggest that the effect of the entry of a large speculator on the probability of successful speculative attacks is larger than that of the exit of the same speculator.     

ASSESSMENT OF WEYMARK'S MEASURES OF EXCHANGE MARKET INTERVENTION: THE CASE OF JAPAN

Abstract.  This paper assesses the validity of the index of foreign exchange market intervention proposed by Weymark. We construct the Weymark index for Japan and then compare it with Japanese public intervention data to evaluate its performance. The results suggest that research using the Weymark index should be interpreted with caution.