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Hedge Funds and the Asian Currency Crisis of 1997

32 Pages Posted: 5 Sep 2000 Last revised: 8 Oct 2010

Stephen J. Brown

New York University - Stern School of Business

William N. Goetzmann

Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

James M. Park

PARADIGM Capital Management

Multiple version iconThere are 3 versions of this paper

Date Written: February 1998

Abstract

We test the hypothesis that hedge funds were responsible for the crash in the Asian currencies in late 1997 . To do so, we develop estimates of the changing positions of the largest ten currency funds in one currency, the Malaysian ringgit and to a basket of Asian currencies. Our methodology is adapted from the Sharpe's (1992) style analysis approach that decomposes fund returns. We find that the net long or short positions in the ringgit or its correlates did fluctuate dramatically over the last four years. However, these fluctuations were not associated with moves in the exchange rates. The estimated net positions of the major funds were not unusual during the crash period, nor were the profits of the funds during the crisis. In sum, we find no empirical evidence to support the hypothesis that George Soros, or any other hedge fund manager was responsible for the crisis.

Suggested Citation

Brown, Stephen J. and Goetzmann, William N. and Park, James M., Hedge Funds and the Asian Currency Crisis of 1997 (February 1998). NBER Working Paper No. w6427. Available at SSRN: https://ssrn.com/abstract=226174

Stephen J. Brown (Contact Author)

New York University - Stern School of Business ( email )

Stern School of Business
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William N. Goetzmann

Yale School of Management - International Center for Finance ( email )

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National Bureau of Economic Research (NBER)

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James M. Park

PARADIGM Capital Management ( email )

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