Hedge Funds and the Asian Currency Crisis of 1997

Stephen J. Brown, William N. Goetzmann, James Park

NBER Working Paper No. 6427
Issued in February 1998
NBER Program(s):   AP

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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Published: Brown, Stephen J., William N. Goetzmann and James M. Park. "Hedge Funds And The Asian Currency Crisis," Journal of Portfolio Management, 2000, v26(4,Summer), 95-101.

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