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

44 Pages Posted: 19 Jan 2009  

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

Norges Bank

Multiple version iconThere are 2 versions of this paper

Date Written: January 2009

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

JEL Classification: F31, F41, G15

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: https://ssrn.com/abstract=1329895

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

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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

Dagfinn Rime (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway
+47-46410507 (Phone)

HOME PAGE: http://home.bi.no/dagfinn.rime/

Haakon O. Solheim

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

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