SIFR Research Report Series, Institute for Financial Research
Geir H. Bjönnes
'Large' vs. 'Small' Players: A Closer Look at the Dynamics of Speculative Attacks
(), Steinar Holden
(), Dagfinn Rime
() and Haakon O.Aa. Solheim
Abstract: What is the role of "large players" like hedge funds and
other highly leveraged institutions in speculative attacks? In recent
theoretical work, large players may induce an attack by an early move,
providing information to smaller agents. In contrast, many observers argue
that large players are in the rear. We propose a model that allows both the
large player to move early in order to induce speculation by small players,
or wait so as to benefit from a high interest rate prior to the attack.
Using data on net positions of "large" (foreigners) and "small" (locals)
players, we find that large players moved last in three attacks on the
Norwegian krone (NOK) during the 1990s: The ERM-crisis of 1992, the
NoK-pressure in 1997, and after the Russian moratorium in 1998. In 1998
there was a contemporaneous attack on the Swedish krona (SEK) in which
large players moved early. Interest rates did not increase in Sweden so
there was little to gain by a delayed attack.
Keywords: Speculative attacks; Microstructure; International finance; Large players; (follow links to similar papers)
JEL-Codes: F31; F41; G15; (follow links to similar papers)
27 pages, December 15, 2005
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