TY - JOUR
T1 - Experimental analysis on the role of a large speculator in currency crises
AU - Taketa, Kenshi
AU - Suzuki-Löffelholz, Kumi
AU - Arikawa, Yasuhiro
N1 - Funding Information:
We deeply thank the editor and two anonymous referees for their encouraging comments to substantially improve this paper. We also thank the participants at the 2006 Far Eastern Meeting of the Econometric Society and the seminar participants from Aoyama Gakuin University, Keio University, Kobe University, Kyoto University, Musashi University, Osaka University, Waseda University, and Yokohama National University, and the staff of the Bank of Japan for their helpful suggestions. Kumi Suzuki-Löffelholz is grateful for financial support provided by the Waseda University 21st Century Center of Excellence program “Constructing Open Political-Economics Systems”. Yasuhiro Arikawa and Kumi Suzuki-Löffelholz also thank the Zengin Foundation for Studies on Economics and Finance for funding support. This paper was prepared in part while Kenshi Taketa was an economist at the Institute for Monetary and Economic Studies, Bank of Japan. All possible remaining errors are ours. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.
Copyright:
Copyright 2009 Elsevier B.V., All rights reserved.
PY - 2009/10
Y1 - 2009/10
N2 - Corsetti et al. (2004) demonstrate that the presence of a large speculator in the foreign exchange market makes the remaining traders more aggressive in their speculative attacks. We conduct an experiment designed to test their theoretical predictions and also use the experiment to analyze an additional aspect that has not been previously covered in the literature: namely, whether the entry of a large speculator and the exit of the same speculator have the same effect in magnitude on the probability of a successful speculative attack. We obtain two main findings. First, the results support the main conclusion of Corsetti et al. (2004) that the presence of a large speculator makes other small speculators more aggressive. Second, the results suggest that the effect of the entry of a large speculator on the probability of successful speculative attacks is larger than that of the exit of the same speculator.
AB - Corsetti et al. (2004) demonstrate that the presence of a large speculator in the foreign exchange market makes the remaining traders more aggressive in their speculative attacks. We conduct an experiment designed to test their theoretical predictions and also use the experiment to analyze an additional aspect that has not been previously covered in the literature: namely, whether the entry of a large speculator and the exit of the same speculator have the same effect in magnitude on the probability of a successful speculative attack. We obtain two main findings. First, the results support the main conclusion of Corsetti et al. (2004) that the presence of a large speculator makes other small speculators more aggressive. Second, the results suggest that the effect of the entry of a large speculator on the probability of successful speculative attacks is larger than that of the exit of the same speculator.
KW - Currency crises
KW - Experimental economics
KW - Global game
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U2 - 10.1016/j.jebo.2009.07.005
DO - 10.1016/j.jebo.2009.07.005
M3 - Article
AN - SCOPUS:70349439000
SN - 0167-2681
VL - 72
SP - 602
EP - 617
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
IS - 1
ER -