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Wednesday, June 08, 2005
 
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Myth #3: Hedge Funds Are Responsible for the Currency Crises of the 1990s
Careful analysis of the 1992 Exchange Rate Mechanism crisis, the 1994–95
Mexican peso crisis, and the 1997 Asian currency crisis points to an array of factors
contributing to the devaluations. Even when hedge fund activities were a link in the chain of events leading to a
crisis, there is no evidence that the hedge funds caused the crises or collapses. It is
possible, for example, that hedge funds reacted to news of changes in macroeconomic policies. Moreover, at least in the Mexican and Asian crises, domestic
investors, rather than foreign hedge fund operators, played the lead role in dumping the currency.

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