Re: Mahathir's Phobia of Speculators

From: John Conover <>
Subject: Re: Mahathir's Phobia of Speculators
Date: 19 Apr 1999 00:32:19 -0000

Burkhard C. Schipper writes:
> During the Asian Crisis starting in 1997, the prime minister of Malaysia,
> Dr. Mahathir, has been blaming foreign speculators for the economic
> problems. Of course any movements at financial markets are caused by
> investors buying and selling financial products. A crisis can be triggered
> by a shock of selling. However, as the crisis emerged relatively unexpected
> even to informed traders, one can not assume solely the motive of
> speculation. There were a lot of other motives to engage at financial
> markets such as to limit losses etc.
> If the crisis came that unexpected, then initially any foreign speculators
> must have been also unable to co-ordinate themselves for speculative attacks
> either through indirect co-ordination of financial markets or due direct
> co-ordination. To sum up, it is very difficult to imagine that the crisis
> was triggered by speculators although speculators are involved into the
> financial markets as usual.

Hi Burkhard. But what if a few of the large speculators' economic
methodologies and/or mathematical techniques were better than the


BTW, the world's currency exchanges do about a trillion dollars a day.
By comparison, this is roughly equivalent to a calendar quarter of
equity trading on Wall Street. Most of the trillion dollars a day is
traded by about 50 large international institutions. These
institutions have a large mathematical and computational
infrastructure available for analyzing the currency markets. Currency
markets tend to exhibit a relatively large kurtosis which, at least in
principle, is exploitable. The US equity markets run a persistence,
(as per Mandelbrot's definition,) of about 0.575, Asian equity markets
a little higher, and international currencies as high as 0.65, or
more.  It may have been inevitable that smaller industrial economies,
such as Indonesia and Thailand, would be caught up in the trillion
dollar a day movement of currency around the world as large
international institutions exploited the relatively high short term
predictability of international currencies. I believe it was in mid
1995, when the dollar was worth 80 yen, and Alan Greenspan was trying
to calm the markets that he made the statement that international
currency was a game between the international currency speculators and
the economic ministers of the industrialized countries. Maybe the US
is not immune to the trillion dollar a day speculators, either.


John Conover,,

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