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

33 Pages Posted: 13 Mar 2014

See all articles by Geir Hoidal Bjonnes

Geir Hoidal Bjonnes

BI Norwegian Business School

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

Date Written: April 2014

Abstract

What is the role of “large players” (e.g., hedge funds) in speculative attacks? Recent work suggests that large players move early to induce smaller agents to attack. However, many observers argue that large players move late in order to benefit from interest‐rate differentials. We propose a model in which large players can do both. Using data on currency trading by foreign (large) and local (small) players, we find that foreign players moved last in three attacks on the Norwegian krone during the 1990s. During the attack on the Swedish krona after the Russian moratorium in 1998, foreign players moved early. Gains by delaying attack were small, however, because interest rates did not increase.

Keywords: Currency crises, foreign exchange trading, large players, microstructure

JEL Classification: F31, F41, G15

Suggested Citation

Bjonnes, Geir Hoidal and Holden, Steinar and Rime, Dagfinn and Solheim, Haakon O., 'Large' Versus 'Small' Players: A Closer Look at the Dynamics of Speculative Attacks (April 2014). The Scandinavian Journal of Economics, Vol. 116, Issue 2, pp. 506-538, 2014, Available at SSRN: https://ssrn.com/abstract=2408829 or http://dx.doi.org/10.1111/sjoe.12044

Geir Hoidal Bjonnes (Contact Author)

BI Norwegian Business School ( 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

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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