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Location of Investors and Capital Flight

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Author Info

  • Dennis P J Botman

    ()
    (The World Bank, Washington DC)

  • Cees G H Diks

    ()
    (CeNDEF. Faculty of Economics and Econometrics, University of Amsterdam, and Tinbergen Institute)

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 Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-013/1.

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Date of creation: 06 Feb 2002
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Handle: RePEc:dgr:uvatin:20020013

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Web page: http://www.tinbergen.nl

Related research

Keywords: Locational heterogeneity; Private information; Exchange rate volatility; Illiquidity; Capital flight;

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  1. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  2. Jeffrey A. Frankel & Sergio L. Schmukler, 1998. "Country Funds and Asymmetric Information," International Finance 9805003, EconWPA.
  3. Benabou, R. & Laroque, G., 1989. "Using Privileged Information To Manipulate Markets: Insiders, Gurus, And Credibility," Working papers 513, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. 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.
  5. Guillermo A. Calvo & Enrique G. Mendoza, 1997. "Rational herd behavior and the globalization of securities markets," Discussion Paper / Institute for Empirical Macroeconomics 120, Federal Reserve Bank of Minneapolis.
  6. Jonathan Eaton & Mark Gersovitz, 1987. "Country Risk and the Organization of International Capital Transfer," NBER Working Papers 2204, National Bureau of Economic Research, Inc.
  7. repec:fth:coluec:602 is not listed on IDEAS
  8. Woochan Kim & Shang-Jin Wei, 1999. "Foreign Portfolio Investors Before and During a Crisis," NBER Working Papers 6968, National Bureau of Economic Research, Inc.
  9. V.V. Chari & Ravi Jagannathan, 1984. "Banking Panics," Discussion Papers 618, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Eaton, Jonathan, 1987. "Public Debt Guarantees and Private Capital Flight," World Bank Economic Review, World Bank Group, vol. 1(3), pages 377-95, May.
  11. Caplin, Andrew & Leahy, John, 1994. "Business as Usual, Market Crashes, and Wisdom after the Fact," American Economic Review, American Economic Association, vol. 84(3), pages 548-65, June.
  12. Botman, Dennis P. J. & Jager, Henk, 2002. "Coordination of speculation," Journal of International Economics, Elsevier, vol. 58(1), pages 159-175, October.
  13. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, vol. 40(3-5), pages 603-615, April.
  14. 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, vol. 49(5), pages 1665-98, December.
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