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Location of investors and capitical flight

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  • Botman, D.P.J.
  • Diks, C.G.H.

    ()
    (Universiteit van Amsterdam)

Abstract

This paper utilizes a very simple model to study the timing and determinants of speculationagainst a fixed exchange rate regime when investors are heterogeneous because of locationaldifferences. Location matters because resident players may incur smaller costs when takinga 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 rolesplayed by local and international investors during episodes of capital flight as well as theresulting room of maneuver for policymakers in emerging markets.

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Bibliographic Info

Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 02-01.

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Date of creation: 2002
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Handle: RePEc:ams:ndfwpp:02-01

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Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
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Web page: http://www.fee.uva.nl/cendef/
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  1. Guillermo A. Calvo & Enrique G. Mendoza, 1997. "Rational herd behavior and the globalization of securities markets," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 120, Federal Reserve Bank of Minneapolis.
  2. Kaufmann, Daniel & Mehrez, Gil & Schmukler, Sergio, 1999. "Predicting currency fluctuations and crises - do resident firms have an informational advantage?," Policy Research Working Paper Series 2259, The World Bank.
  3. Woochan Kim & Shang-Jin Wei, 1999. "Foreign Portfolio Investors Before and During a Crisis," NBER Working Papers 6968, National Bureau of Economic Research, Inc.
  4. Eaton, Jonathan, 1987. "Public Debt Guarantees and Private Capital Flight," World Bank Economic Review, World Bank Group, World Bank Group, vol. 1(3), pages 377-95, May.
  5. Benabou, R. & Laroque, G., 1988. "Using Privileged Information To Manipulate Markets: Insiders, Gurus And Credibility," Papers, Princeton, Woodrow Wilson School - Discussion Paper 19, Princeton, Woodrow Wilson School - Discussion Paper.
  6. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(3), pages 401-19, June.
  7. Jeffrey A. Frankel and Sergio L. Schmukler., 1997. "Country Funds and Asymmetric Information," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C97-087, University of California at Berkeley.
  8. Hirshleifer, David & Subrahmanyam, Avanidhar & Titman, Sheridan, 1994. " Security Analysis and Trading Patterns When Some Investors Receive Information before Others," Journal of Finance, American Finance Association, American Finance Association, vol. 49(5), pages 1665-98, December.
  9. Hyuk Choe & Bong-Chan Kho & Rene M. Stulz, 2001. "Do Domestic Investors Have More Valuable Information About Individual Stocks Than Foreign Investors?," NBER Working Papers 8073, National Bureau of Economic Research, Inc.
  10. repec:fth:coluec:602 is not listed on IDEAS
  11. Jonathan Eaton & Mark Gersovitz, 1987. "Country Risk and the Organization of International Capital Transfer," NBER Working Papers 2204, National Bureau of Economic Research, Inc.
  12. V.V. Chari & Ravi Jagannathan, 1984. "Banking Panics," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 618, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Caplin, A. & Leahy, J., 1992. "Business as Usual, Market Crashes and Wisdom After the Fact," Discussion Papers, Columbia University, Department of Economics 1992_18, Columbia University, Department of Economics.
  14. Botman, Dennis P. J. & Jager, Henk, 2002. "Coordination of speculation," Journal of International Economics, Elsevier, Elsevier, vol. 58(1), pages 159-175, October.
  15. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, Elsevier, vol. 40(3-5), pages 603-615, April.
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