Big elephants in small ponds: Do large traders make financial markets more aggressive?

Arbeitspapier

Market participants often suspect that large traders have a disproportionate effect on financial markets, increasing the aggressiveness of market responses. Prior studies have shown that the impact of a large trader on a currency crisis depends positively on his size and informational position. By contrast, this article highlights the role that market sentiment has on the impact of a large trader. If the market believes that fundamentals are weak, then the probability of a crisis depends positively on the trader's size but negatively on the precision of his information, with these effects reversed in a generally optimistic market. A large player, therefore, need not make market responses more aggressive.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Volkswirtschaftliche Diskussionsbeiträge ; No. 77

Classification and Topics

• Classification: Wirtschaft ; Foreign Exchange ; Asymmetric and Private Information; Mechanism Design
• Subject: currency crises ; large traders ; market sentiment ; coordination ; private and public information ; Währungskrise ; Devisenspekulation ; Asymmetrische Information ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bannier, Christina E.
• Event: Veröffentlichung
• (who): Universität Kassel, Fachbereich Wirtschaftswissenschaften
• (where): Kassel
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/32146
• Last update: 10.03.2025, 11:42 AM CET