Location of Investors and Capital Flight

21 Pages Posted: 13 Feb 2002

See all articles by Dennis P. J. Botman

Dennis P. J. Botman

International Monetary Fund (IMF) - Fiscal Affairs Department

Cees G. H. Diks

University of Amsterdam - Faculty of Economics and Business (FEB); Tinbergen Institute

Abstract

This paper utilizes a very simple model to study the timing and determinants of speculation against a fixed exchange rate regime when investors are heterogeneous because of locational differences. Location matters because resident players may incur smaller costs when taking a short-position, are less exposed to exchange rate risk, possess better information quality, have more knowledge about each others information sets, due to asymmetries in tax treatment, or because of the presence of government guarantees. Our model clarifies the respective roles played by local and international investors during episodes of capital flight as well as the resulting room of maneuver for policymakers in emerging markets.

Keywords: locational heterogeneity, private information, exchange rate volatility, illiquidity, capital flight

Suggested Citation

Botman, Dennis P. J. and Diks, Cees G. H., Location of Investors and Capital Flight. Available at SSRN: https://ssrn.com/abstract=300167 or http://dx.doi.org/10.2139/ssrn.300167

Dennis P. J. Botman

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Cees G. H. Diks (Contact Author)

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 53 29 (Phone)
+31 20 525 4349 (Fax)

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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