Do large investors increase the vulnerability of a country to speculative attacks in the foreign exchange markets? To address this issue, we build a model of currency crises where a single large investor and a continuum of small investors independently decide whether to attack a currency based on their private information about fundamentals. Even abstracting from signalling, the presence of the large investor does make all other traders more aggressive in their selling. Relative to the case in which there is no large investor, small investors attack the currency when fundamentals are stronger. Yet, the difference can be small, or non-existent, depending on the relative precision of private information of the small and large investors. Adding signalling makes the influence of the large trader on small traders' behaviour much stronger.

Financial contagion is modeled as an equilibrium phenomenon in a dynamic setting with incomplete information and multiple banks. The equilibrium probability of bank failure is uniquely determined. We explore how the cross holding of deposits motivated by imperfectly correlated regional liquidity shocks can lead to contagious effects conditional on the failure of a financial institution. We show that contagion is possible in the unique equilibrium of the economy and characterize exactly when it may exist. At the same time, we identify a direction of flow for contagious effects, which provides a rationale for localized financial panics. Simulations identify the optimal level of interbank deposit holdings in the presence of contagion risk. Our results suggest that when the probability of bank failure is low, maximal levels of interbank holdings are optimal. When cross holding of deposits is complete, we demonstrate that the intensity of contagion is increasing in the size of regionally aggregate liquidity shocks.

We have calculated a simple model of the expected Kuiper Belt (KB) small grain population and the thermal emission that would arise from such grains. We have also sought observational evidence for this emission. The model assumed equilibrium between grain creation by collisional fragmentation of comets and removal by Poynting-Robertson radiation drag, radiation pressure-driven ejection, mutual collisions, and sublimation. The model far-IR intensity scales as the square of total KB mass. Comparison of our model with observations of the zodiacal dust rules out emission from trans-Neptunian dust representing more than about 0.3 M Q of KB comets. This agrees with recent HST reports of a population of comet-sized bodies in the KB which has a minimum mass of about 0.04 M Q , although that population can be extrapolated to include as much as 1 M Q in the volume of our model. The model KB dust fractional bolometric luminosity (L dust /L star) would have about 10 Ϫ2 and 10 Ϫ4 of the values for the grain disks around Vega and ␤ Pic, respectively. A preliminary search in COBE DIRBE data reveals nonuniform bands near the ecliptic of cold (T ϭ 20-30 K) emission prominent at wavelengths of 140 and 240 m but not prominent relative to zodiacal emission at shorter (IRAS) wavelengths. Most of this emission is probably not from solar system material.

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Recent studies show that single-quarter institutional herding positively predicts short-term returns. Motivated by the theoretical herding literature, which emphasizes endogenous persistence in decisions over time, we estimate the effect of multiquarter institutional buying and selling on stock returns. Using both regression and portfolio tests, we find that persistent institutional trading negatively predicts long-term returns: persistently sold stocks outperform persistently bought stocks at long horizons. The negative association between returns and institutional trade persistence is not subsumed by past returns or other stock characteristics, is concentrated among smaller stocks, and is stronger for stocks with higher institutional ownership.A GROWING LITERATURE ON THE trading behavior of institutional money managers shows that they exhibit a tendency to herd, that is, to imitate each others' trades. Given the increasing prevalence of such investors in financial markets, the potential price impact of institutional herding is of great interest. Institutional herding behavior is generally found to have a stabilizing effect on prices. Several well-known studies find a positive correlation between the direction of institutional herding and future stock returns, thus concluding that institutional trading pushes prices towards equilibrium values. For example, Wermers (1999) shows that stocks heavily bought by mutual funds during a given quarter outperform stocks heavily sold by funds in that quarter, over the subsequent 6 months. Sias (2004) finds that institutional demand is positively * Amil Dasgupta, Andrea Prat, and Michela