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Abstract
Each episode of instability in international financial markets heightens the attention of government officials and others to the role played by institutional investors, and hedge funds in particular. This was the case in 1992, following the crisis affecting the exchange rate mechanism (ERM) of the European Monetary System. It was the case in 1994, a period of turbulence in international bond markets. It was again the case in 1997 in the wake of the financial upheavals in Asia. In each case, it has been suggested, hedge funds precipitated major movements in asset prices, either through the sheer volume of their own transactions or via the tendency of other market participants to follow their lead.
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