Does one Soros make a difference? A theory of currency crises with large and small traders

Giancarlo Corsetti, Amil Dasgupta, Stephen Morris and Hyun Song Shin

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Do large investors increase the vulnerability of a country to speculative attacks in the foreign exchange markets? To address this issue, we build a model of currency crises where a single large investor and a continuum of small investors independently decide whether to attack a currency based on their private information about fundamentals. Even abstracting from signaling, the presence of the large investor does make all other traders more aggressive in their selling. Relative to the case in which there is no large investors, small investors attach the currency when fundamentals are stronger. Yet, the difference can be small, or null, depending on the relative precision of private information of the small and large investors. Adding signaling makes the influence of the large trader on small traders behaviour much stronger.

JEL-codes: D82 F31 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2001-03-01
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders (2004)
Working Paper: Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders (2001)
Working Paper: Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders (2000)
Working Paper: Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:25045

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