Resumen de Speculation, hedging and intermediation in the foreign exchange market
In this study it is attempted to estimate the amount of speculation in foreign exchange markets. Such an estimate is bard to make because it is theoretically as well as empirically difficult to delintitate specuJation in relation to other activities. In particular, the distinction between speculation and hedging is highly problematic. Notwithstanding these difficulties it is shown how the composition of gross flows can be used to derive information about speculation and hedging.
In an extensive analysis of the interconnections of various fx market activities it is shown that hedging may generate large sbort-term capital flows which cannot be easily distinguished from speculation. The size of these flows does not only depend on capital and trade flows but also on net and gross stocks of foreign assets and liabilities.
Based on these findings, an analysis of capital flows between Spain and the rest of the world sbows that a larger part than earlier believed of the capital outflows dnring the EMS crisis may have been due to bedging. The second case study which focuses on Japan reveals remarkable changes in the behaviour of Japanese and/or foreign investors.
What are the implications for econontic policy? The study highlights the significance of stocks of open fx positions of foreigners and residents. If ihese stocks have been accumu1ating over many years, any crisis of confidence may trigger large outflows due to bedging, the size of which may by far be more important than the potential amount of speculation. Such hedging activities would hardly be deterred by a Tobin-tax or similar devices.
