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Hedge Funds and the Asian Currency Crisis of 1997

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Author Info
Stephen J. Brown
William N. Goetzmann
James Park

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Abstract

We test the hypothesis that hedge funds were responsible for the crash in the Asian currencies in late 1997 . To do so, we develop estimates of the changing positions of the largest ten currency funds in one currency, the Malaysian ringgit and to a basket of Asian currencies. Our methodology is adapted from the Sharpe's (1992) style analysis approach that decomposes fund returns. We find that the net long or short positions in the ringgit or its correlates did fluctuate dramatically over the last four years. However, these fluctuations were not associated with moves in the exchange rates. The estimated net positions of the major funds were not unusual during the crash period, nor were the profits of the funds during the crisis. In sum, we find no empirical evidence to support the hypothesis that George Soros, or any other hedge fund manager was responsible for the crisis.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6427.

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Date of creation: Feb 1998
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Handle: RePEc:nbr:nberwo:6427

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fung, William & Hsieh, David A, 1997. "Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(2), pages 275-302.
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  1. Holt, Bryce R. & Irwin, Scott H., 2000. "The Effects Of Futures Trading By Large Hedge Funds And Ctas On Market Volatility," 2000 Conference, April 17-18 2000, Chicago, Illinois 18935, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management. [Downloadable!]
  2. Nicholas Chan & Mila Getmansky & Shane M. Haas & Andrew W. Lo, 2005. "Systemic Risk and Hedge Funds," NBER Working Papers 11200, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Nicholas Chan & Mila Getmansky & Shane M. Haas & Andrew W. Lo, 2007. "Systemic Risk and Hedge Funds," NBER Chapters, in: The Risks of Financial Institutions, pages 235-338 National Bureau of Economic Research, Inc. [Downloadable!]
  3. Mila Getmansky & Andrew W. Lo & Igor Makarov, 2003. "An Econometric Model of Serial Correlation and Illiquidity in Hedge Fund Returns," NBER Working Papers 9571, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Rajesh Chakrabarti & Richard Roll, 2000. "East Asia and Europe During the 1997 Asian Collapse: A Clinical Study of a Financial Crisis," University of California at Los Angeles, Anderson Graduate School of Management 1070, Anderson Graduate School of Management, UCLA. [Downloadable!]
  5. J. A. Kregel, 1998. "Derivatives and Global Capital Flows: Applications to Asia," Macroeconomics 9809001, EconWPA. [Downloadable!]
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  6. Komulainen, Tuomas, 2001. "Currency Crises in Emerging Markets: Capital Flows and Herding Behaviour," BOFIT Discussion Papers 10/2001, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  7. Azman-Saini, W.N.W., 2006. "Hedge funds, exchange rates and causality: Evidence from Thailand and Malaysia," MPRA Paper 716, University Library of Munich, Germany. [Downloadable!]
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