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'Large' vs. 'Small' Players: A Closer Look at the Dynamics of Speculative Attacks


Geir Hoidal Bjonnes


The Norwegian School of Management BI

Steinar Holden


University of Oslo - Department of Economics; Norges Bank; CESifo (Center for Economic Studies and Ifo Institute)

Dagfinn Rime


BI Norwegian Business School

Haakon Solheim


Central Bank of Norway

January 2009

CESifo Working Paper Series No. 2518

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.

Number of Pages in PDF File: 44

Keywords: speculative attacks, microstructure, international finance, large players

JEL Classification: F31, F41, G15

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Date posted: January 19, 2009  

Suggested Citation

Bjonnes, Geir Hoidal and Holden, Steinar and Rime, Dagfinn and Solheim, Haakon, 'Large' vs. 'Small' Players: A Closer Look at the Dynamics of Speculative Attacks (January 2009). CESifo Working Paper Series No. 2518. Available at SSRN: http://ssrn.com/abstract=1329895

Contact Information

Geir Hoidal Bjonnes
The Norwegian School of Management BI ( email )
Nydalsveien 37
Oslo, 0484
Norway
+47 46410502 (Phone)
HOME PAGE: http://www.bi.no/BI/AcademicProfile____37601.aspx?ansattid=/fgl96014
Steinar Holden
University of Oslo - Department of Economics ( email )
P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47 22 85 51 56 (Phone)
+47 22 85 50 35 (Fax)
HOME PAGE: http://folk.uio.no/~sholden/
Norges Bank ( email )
P.O. Box 1179
Oslo, N-0107
Norway
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
HOME PAGE: http://www.CESifo.de
Dagfinn Rime (Contact Author)
BI Norwegian Business School ( email )
Nydalsveien 37
Oslo, 0442
Norway
+47-46410507 (Phone)
Haakon O. Solheim
Central Bank of Norway ( email )
P.O. Box 1179
Oslo, N-0107
Norway
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