.This was soon abandoned. The Italian lira came under attack and wasdevalued 7% on Sunday, September 13, 1992. The Spanish pesetacame under attack. The pound sterling came under attack. Thedecline in the pound sterling accelerated on Monday, September 14,1992. On September 16, 1992, the Bank of England raised short-terminterest rates from 10% to 12% and later to 15%, even though theU.K. economy was arguably in a recession. The interest rate hikesfailed. The Bank of England threw in the towel and withdrew fromthe ERM, effectively letting the pound sterling float. The Bank ofItaly withdrew the lira from the ERM and decided to let it float. TheSpanish central bank devalued the peseta by 5%. The collapse of thepound sterling is depicted in Figure 6.3.George Soros is justly famous as the trader who broke the Bank ofEngland on Black Wednesday. Various news reports suggest that Mr.Soros’ hedge fund (whose principal trader was Stanley Druckenmiller) made over $1 billion overnight from shorting the pound sterling during the crisis. George Soros indicated, in a later interview,that the Bank of England’s decision to raise interest rates during arecession to discourage speculation was a signal that it was unable todefend the pound sterling and would have to exit from the ERM.20This gave him the confidence to have his hedge fund put on anextremely large short sterling position. During the same interview,Mr. Soros was asked whether he had assumed too much risk by takingsuch a large position if the Bank of England was able to maintain theexchange rate and the trade went against him. He replied that he hadnot because it was a one-sided bet, or as he characterized, it was an“uneven bet” where the potential losses were minimal and the potential gains were enormous.21
178
2.05002.00009/16/92date.open 1.8579date.high 1.8760date.low 1.7740date.close 1.7745
1.95001.90001.85001.80001.75009/16/92
1.70001.65001.60001.55001.50007/1/92
8/1/92
9/1/92
10/1/92
11/1/92
FIGURE 6.3
Calling a one-sided bet on pound sterling.
TRADING CATALYSTS
Reaction of the pound sterling/dollar exchange rate during September 1992. Daily trading range of the pound sterling/dollar exchangerate for the period July 1, 1992 to November 20, 1992.
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Although much attention has focused on the enormous tradingprofits that Mr. Soros’ hedge fund and other currency speculatorsmade that day, considerably less attention has been directed towardthe total amount of losses that were incurred by the Bank of Englandin defending the indefensible exchange rate level. The Bank of England spent nearly £15 billion defending the exchange rate.22 Ofcourse, not all £15 billion was lost. The Financial Times reported laterthat the Bank of England lost £3.3 billion from the misguided operations. At recent exchange rates, this translates into a $6.1 billionloss.23 Approximately one-fourth of the loss was attributed to outrighttrading losses with the balance attributed to lost appreciation of foreign reserves expended to defend the pound sterling.Total central bank losses were larger because the Bank of England received substantial assistance from at least one other centralbank during the crisis—Bank Negara Malaysia. Subsequent newsaccounts indicated that the central bank of Malaysia lost almost 10billion ringgit, or about $4 billion, at the time defending the poundsterling. The Asian Wall Street Journal reported that Bank Negaralost another 5.7 billion ringgit in 1993 from other currency speculation.24 Another way of looking at it is that the Bank of England andBank Negara Malaysia were engaged in currency speculation thatresulted in a wealth transfer of billions of dollars from average citizens of those two nations to the foreign exchange trading community.It also highlights the considerable losses that central banks can incurwhen they attempt to manipulate the market.Speculative attacks occurred on other currencies during thisperiod as well. After the Bank of England stopped trying to defendthe pound sterling, a speculative attack was launched on the Frenchfranc. This one proved unsuccessful as the Banque de France(together with the Deutsche Bundesbank) was able to maintain theFrench currency within the bands established by the ERM. The keyfactor in the success of the French effort to maintain the exchangerate was the active support of the Deutsche Bundesbank.25 Some
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observers contend that the support of the Deutsche Bundesbank waslacking when the Bank of England attempted to maintain the poundsterling exchange rate.
The Hong Kong Monetary AuthorityIntervenes in the Stock MarketA recurrent theme in this book is that trading is a game. As a game,trading strategies do not exist in a vacuum but are dependent uponthe expected behavior of other market participants as well as institutional factors that may affect the trading process. The rewards fromtrading can be enormous. This creates a powerful incentive to anticipate correctly how prices will behave under various circumstances. Inmost cases, traders are simply trying to anticipate price changes andare unable to influence price changes by their actions taken alone.However, the potential for enormous trading profits also creates apowerful incentive for some market participants to attempt to engineer the desired price change by manipulating markets. The resultanttrading strategies may be simple or complex, but the effects on market prices and volatility can be substantial.Central banks are sometimes forced to intervene in unusual waysto fight attempts at market manipulation. One of the more unusualmarket interventions was the decision of the Hong Kong MonetaryAuthority (HKMA)—the de facto central bank of the Hong KongSpecial Autonomous Region of the People’s Republic of China—tobuy stocks and stock index futures during August 1998.The decision of the HKMA is interesting for several reasons.1. Central banks rarely intervene directly in the stock or stockindex futures markets.
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2. The intervention was a response to traders who were attempting to profit from a complex strategy that involved selling HongKong stock index futures and later selling previously borrowedHong Kong dollars from the swap market in an attempt to driveinterbank interest rates up and stock prices down.3. The intervention attempted to exploit the mechanical nature ofHong Kong’s currency board monetary system.4. The size of the intervention was immense.265. The actions of the HKMA were ultimately successful and theHKMA earned a substantial profit on the securities theyacquired.6. The intervention by the HKMA may have distorted the relationship between stock index and stock index futures pricesand left apparent unexploited arbitrage profit opportunities forsome time following the intervention.To appreciate the decision of the HKMA to intervene in the stockand stock index futures market, it is important to understand how acurrency board operates and what happened in previous speculativeattacks on the Hong Kong dollar. First, a currency board is simply amonetary system in which changes in the local currency are tied tochanges in central bank holdings of a foreign currency at a fixedexchange rate. Hong Kong utilizes a currency board to maintain alargely fixed exchange rate with the U.S. dollar. At the time of the crisis, the exchange rate was US$1 = HK$7.8. A currency board sharplylimits discretion by the central bank. Instead, the currency boardresponds passively to changes in capital flows. For instance, additional Hong Kong dollars can only be issued if foreign reserves areincreased by an equivalent amount (at the fixed exchange rate). Conversely, the conversion of Hong Kong dollars into U.S. dollarsreduces the amount of Hong Kong dollars outstanding by the fixed
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exchange rate. Interbank interest rates (the Hong Kong equivalent ofthe Fed funds rate) are a function of the total balance of funds heldby the Hong Kong clearing banks at the HKMA. The lack of reserverequirements and the efficiency of the Hong Kong banking systemmean that the amount is normally relatively low. Interbank interestrates rise when the aggregate balance falls and fall when the aggregate balance rises. The sudden dumping of a large amount of HongKong dollars will reduce the aggregate balance and raise the interbank interest rate sharply.Second, soon after the Asian Financial Crisis began with thedevaluation of the Thai baht on July 2, 1997, the Hong Kong dollarcame under a series of speculative attacks. The attacks increased during October 1997. Although the fixed exchange rate link between theHong Kong dollar and the U.S. dollar remained unchanged throughout the repeated speculative attacks, the adjustment to the attacks—higher short-term interbank interest rates—affected other HongKong markets. On October 23, 1997, the Hong Kong interest rateapproached 300%.27 Not surprisingly, this had a negative effect on theHong Kong stock market. The sharp declines in the Hong Kong market that week and early the week after spilled over to the U.S. stockmarket on Monday, October 27, 1997.The speculative attacks on the Hong Kong dollar failed. The currency board worked. Traders who had shorted the Hong Kong dollarin the expectation of an effective devaluation failed and sufferedlosses. The HKMA had maintained the fixed link to the U.S. dollarbut at some cost to other markets. The speculative attacks demonstrated that the interbank interest rate could be pushed sharplyhigher when massive amounts of Hong Kong dollars are sold as aresult of Hong Kong’s adherence to the mechanical currency boardsystem. The speculative attacks also demonstrated that a sharp rise inthe interbank interest rate would depress stock prices. The sharp risein the interbank interest rate also imposed a substantial opportunitycost on traders who were short the Hong Kong dollar. If the fixed
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exchange rate remained impervious to a speculative attack, a traderwho was short the stock market could benefit handsomely if a speculative attack drove the interbank interest rate sharply higher andstock prices sharply lower. Shorting stock index futures would be aneasy and less risky way to put on a large short stock position.28 To precipitate an attack on the Hong Kong currency, traders would needHong Kong dollars to sell. This would expose traders who were shortthe Hong Kong dollar to substantial costs as short rates rose, unlessthe trader was able to obtain a sufficient amount of Hong Kongdollars in advance. This problem was solved by swapping into HongKong dollars with counterparties who had borrowed money inHong Kong.Trading is a game. As such, traders learn from past market behavior. However, so do central banks. As noted earlier, a looming crisis inRussia in August 1998 spilled over to other markets including HongKong. In addition, the Long-Term Capital Management crisis wasbrewing. Against this backdrop, the attempted manipulation of theHong Kong market occurred. Mr. Joseph Yam, chief executive of theHong Kong Monetary Authority, described the situation this way in aspeech delivered in November 1998.…One troubling aspect of the Asian crisis…has been theextreme volatility in markets created by the rapid flows ofhighly leveraged funds around the world. As markets in theregion became more vulnerable, these flows increasingly tookon a predatory character and became more and more subtlein their planning and sophistication. This August [1998]…theHong Kong financial markets became the target of a wellplanned attack by international hedge funds…In August the speculators…introduced a form of double playaimed at playing off the currency board system against thestock and futures markets. First, to avoid being squeezed byhigh interest rates, they prefunded themselves in Hong Kongdollars in the debt market, swapping US dollars for Hong
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Kong dollars with multilateral institutions that have raisedHong Kong dollars through the issue of debt. At the sametime, they accumulated large short positions in the stockindex futures market. They then sought to engineer extremeconditions in the money market by dumping huge amounts ofHong Kong dollars. This selloff was intended to cause a sharpinterest rate hike, which in turn would have sent the stockmarket plummeting. The collapse of the stock market wouldhave enabled them to reap a handsome profit from thefutures contracts they had taken out.A few figures will help give some idea of the scale of thisattack…We estimate that the hedge funds involved hadamassed in excess of HK$30 billion in currency borrowings,at an interest cost of around HK$4 million a day. They alsoheld an estimated 80,000 short contracts, which translatedinto the following calculation: for every fall of 1,000 points inthe Hang Seng index they stood to make a profit of HK$4 billion. If they could have engineered that fall within 1,000 daysthey would have broken even. If they could have achieved itwithin 100 days they would have netted HK$3.6 billion. Allthey had to do was to wait for the best moment to dump theirHong Kong dollars, to drive up interest rates and send ashock wave through the stock market. August was an opportune time.29The HKMA recognized the potential market manipulation andsought to discourage similar future attempts by ensuring that thetraders who were short 80,000 Hang Seng stock index futures contracts did not profit from their actions. The HKMA bought US$15billion of stocks and Hang Seng stock index futures contracts. TheHKMA also changed some aspects of the currency board system. Theactions were successful and the shorts lost money. By November 23,1998, the value of the HKMA equity portfolio was up US$4 billionfrom where it was acquired.30
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The effects of the HKMA intervention did not end immediately.A study by Professors Paul Draper and Joseph Fung [2003] arguesthat the HKMA’s intervention in the stock index futures market hada significant and long-lasting impact on the basis, or difference,between the Hang Seng stock index and Hang Seng stock indexfutures price. The basis was negative rather than positive. Moreover,they argue that arbitrageurs did not exploit the potential arbitrageopportunity that the negative basis implied because of concern thatthe HKMA might intervene in the stock index futures markets again.Put differently, market participants faced a higher cost of having shortstock positions after the intervention than before.31
Trading LessonsThe belief that central banks or governments can improve upon theprices generated in a free market is widely held by policymakers andpoliticians alike. It is the source of many attempts by governmentsand central banks to induce changes in prices through market interventions. It is also a source of significant profits for the tradingcommunity.Market interventions can exert a dramatic effect on market pricesand volatility. Often the effects are powerful but short-lived. Sometimes, they mark a local turning point in the trend of prices. In eithercase, market interventions by governments and central banks createboth risk and opportunity for traders. The risk is that the central bankor government can push prices far enough and long enough to forcetraders to cut their losses short. The opportunity is that the centralbank or government is not price sensitive and may create one-sidedbets and allow large traders to bet against it with limited risks.Central banks are the quintessential example of how one marketparticipant can influence market prices. Market interventions work
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best (from the policymaker’s perspective) when central bank or government actions reinforce an existing trend or exploit a natural tendency of traders to minimize their losses—that is, to cut their lossesshort. Simply put, well-designed interventions can let the private sector do much of the “heavy lifting” required to achieve the short-termpolicy objective.Precisely because the central bank is not required to make aprofit on its transactions, it may engage in behavior contrary to whatany rational trader would—that is, it frequently fails to cut its lossesshort. By willingly taking the other side to trades, the central bankenables traders to take a larger position size than might otherwise beavailable in the open market. For instance, by following a policy ofdefending an exchange rate that differs from what would prevail in afree market, central banks invite speculative attacks and create onesided bets.Trading is a game. As a game, trading strategies do not exist in avacuum but are dependent upon the expected behavior of other market participants as well as institutional factors that may affect thetrading process. Traders learn from their experiences. Although mosttraders are simply trying to correctly forecast changes in prices orvolatility, a few traders try to engineer a desired price change bymanipulating the market. These actions can have a substantial impacton even seemingly unrelated markets. Central banks also learn fromtheir experiences and market observations. Sometimes, interventionis necessary to prevent market manipulation as the HKMA arguedwhen it intervened in the stock and stock index futures markets during August 1998.The trader must assess the probability of a market intervention bythe government or its central bank. The trader must also assess thelikely magnitude, duration, and direction of impact of the intervention. Many interventions are large but short-lived. Wide stops are notthe answer given the potential magnitude of some interventioninduced short-term price moves. Indeed, the prospect of greater risk
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induced by uncertainty over future market interventions may causemany traders to reduce their overall trading positions when there is asubstantial risk of market intervention. It may also cause other tradersto substantially increase their positions if they are extremely confident in their beliefs, for instance, that the central bank is no longerable to maintain a nonmarket exchange rate.32 When governmentsand their central banks attempt to defend unsustainable exchangerates or prices, they may not only create one-sided betting opportunities but also facilitate larger position sizes for speculators. In a onesided bet situation, the trader should consider increasing his positionsize. The trader should also increase the stops on the trade to avoidbeing prematurely stopped out. Finally, the trader may shorten histrade horizon in an environment where there is substantial risk ofmarket intervention other things being equal.
ReferencesAgence France Presse. “Oil Prices Reach New 10-Year Highs.”September 18, 2000.Agence France Presse. “US Joins Euro Intervention to Limit Potential Damage.” September 22, 2000.American Public Media. Marketplace. June 17, 1998.Bahree, Bhushan and Neil King Jr. “Rising Oil Prices Provide Iraqwith New Weapon—Saddam Hussein Could Use Export Power toSeek Gains.” The Wall Street Journal Europe, September 19, 2000.Bank for International Settlements. “Triennial Central Bank Surveyof Foreign Exchange and Derivatives Market Activity 2004 – FinalResults.” (http://www.bis.org/publ/rpfx04.htm).Bank for International Settlements. “Triennial Central Bank Surveyof Foreign Exchange and Derivatives Market Activity 2001 – FinalResults.” (http://www.bis.org/publ/rpfx02t.pdf).
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Beveridge, Dirk. “France Bolsters Defense of Franc, And Succeeds, For A Day.” The Associated Press, September 23, 1992.Brancaccio, David. Marketplace. June 17, 1998 (http://marketplace.publicradio.org/shows/1998/06/17_mpp.html).Burdess, Lara. “Analysts—Russian Mkts Fee Fall—Jitters OverDefault, Deval.” Market News International, August 12, 1998.Business Week Online. “Don’t Let Japan’s ‘Mr. Dollar’ Get Away withIt.” March 22, 2004.CNBC. “After Hours with Maria Bartiromo.” Interview with GeorgeSoros, September 16, 2002.Draper, Paul and Joseph K.W. Fung. “Discretionary GovernmentIntervention and the Mispricing of Index Futures.” Journal ofFutures Markets, Vol. 23, No. 12, 2003, pp. 1159-1189.Duthie, Stephen. “New Governor at Bank Negara Has Tough Job.”The Asian Wall Street Journal, April 11, 1994.Graff, Peter. “Focus-Russian Government Undaunted by MarketSlump.” Reuters News, August 11, 1998.Mark Egan. “Gore Urges Sale of Oil from U.S. Strategic Reserves.”Reuters News, September 21, 2000.Market News International. “US TSYS up after Joint Euro Intervention – Global STKS Plunge.” September 22, 2000, 8:32 A.M.Paterson, Lea. “Markets on Standby for Further Euro Intervention.”The Times, September 23, 2000.Reuters News. “Dlr Drops More Than 4 Yen in Tokyo on Intervention.” April 10, 1998.Schwager, Jack D. The New Market Wizards: Conversations withAmerica’s Top Traders. New York: HarperBusiness, 1992.Spector, Katherine. “Crude Plunges in Anticipation of StrategicPetroleum Reserve Draw.” The Oil Daily, September 25, 2000.
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Studermann, Frederick, and James Blitz. “Revelations on UK Exitfrom ERM Go from Drama to Farce.” Financial Times, February 10,2005, p. 2.Thompson, Steve. “London Stock Exchange—Euro InterventionTriggers Late Rally in Equities.” Financial Times, September 23,2000.Whitebloom, Sarah. “Sterling Crisis – Forex Frenzy Nets #900m.”The Observer, September 20, 1992.Yam, Joseph. Hong Kong Monetary Authority. “Coping with Financial Turmoil.” Inside Asia Lecture 1998, Sydney, Australia, November23, 1998.
Endnotes1
Market News International. “US TSYS up after Joint Euro Intervention – GlobalSTKS Plunge.” September 22, 2000, 8:32 A.M.
2
Steve Thompson, “London Stock Exchange—Euro Intervention Triggers LateRally in Equities.” Financial Times, September 23, 2000.
3
Lea Paterson. “Markets on Standby for Further Euro Intervention.” The Times,September 23, 2000.
4
The U.S. Treasury is responsible for exchange rate policy in the United States.The Fed, in its role as the U.S. government’s banker, executes currency marketoperations for the Treasury. It should be pointed out, however, that the Treasury’s efforts to intervene to support or weaken the dollar impact the money supply by changing the amount of money in circulation. Consequently, the Fed cansterilize (or undo) the effects of the intervention by changing the money supplyaccordingly.
5
Agence France Presse. “US Joins Euro Intervention to Limit Potential Damage.” September 22, 2000.The article points out that some market participants thought that the upwardmove in the euro was limited because, “Reports that both the ECB and the USTreasury would be satisfied if the euro stayed above 0.8700, also kept it fromgaining further, they added.”
6
Bank for International Settlements. “Triennial Central Bank Survey of ForeignExchange and Derivatives Market Activity 2004 – Final Results.” (http://www.bis.org/publ/rpfx04.htm). To be sure, the average daily amount traded in the foreign
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TRADING CATALYSTSexchange market was lower in September 2000. An April 2001 BIS survey estimated average trading volume of $1.2 trillion. Bank for International Settlements. “Triennial Central Bank Survey of Foreign Exchange and DerivativesMarket Activity 2001 – Final Results.” (http://www.bis.org/publ/rpfx02t.pdf).
7
Katherine Spector. “Crude Plunges in Anticipation of Strategic PetroleumReserve Draw.” The Oil Daily, September 25, 2000.
8
Agence France Presse. “Oil Prices Reach New 10-Year Highs.” September 18,2000. The article argues that part of the reason that crude oil prices were as highas they were was the expectation by market participants that the U.S. would nottap into the Strategic Petroleum Reserve.
9
Bhushan Bahree and Neil King Jr. “Rising Oil Prices Provide Iraq with NewWeapon—Saddam Hussein Could Use Export Power to Seek Gains.” The WallStreet Journal Europe, September 19, 2000.
10
Mark Egan. “Gore Urges Sale of Oil from U.S. Strategic Reserves.” ReutersNews, September 21, 2000.
11
Katherine Spector. “Crude Plunges in Anticipation of Strategic PetroleumReserve Draw.” The Oil Daily, September 25, 2000.
12
David Brancaccio. Marketplace. June 17, 1998. (http://marketplace.publicradio.org/shows/1998/06/17_mpp.html).
13
Reuters reported the following example on April 10, 1998:The dollar dropped more than four yen in Tokyo trade on Friday due toaggressive dollar-selling intervention by the Bank of Japan (BOJ),bankers said. The dollar fell toward 127.00 yen from a Tokyo high for theday of 131.55 yen, after…persistent bouts of dollar for yen sales by thecentral bank from late morning.Reuters News. “Dlr Drops More Than 4 Yen in Tokyo on Intervention.” April 10,1998.
14
Business Week Online. “Don’t Let Japan’s ‘Mr. Dollar’ Get Away with It.” March22, 2004.
15
“Defenderé el peso como un perro!” Not surprisingly, President Portillo wascontemptuously referred to as “the dog” and barked at by his angry countrymenwhen he appeared in public.
16
Peter Graff. “Focus-Russian Government Undaunted by Market Slump.”Reuters News, August 11, 1998.
17
Lara Burdess. “Analysts—Russian Mkts Fee Fall—Jitters Over Defaulat,Deval.” Market News International, August 12, 1998.
18
The Italian lira was allowed to fluctuate within a wider band.
19
The treaty was narrowly approved by French voters.
20
CNBC. “After Hours with Maria Bartiromo.” Interview with George Soros,September 16, 2002.
21
CNBC. “After Hours with Maria Bartiromo.” Interview with George Soros,September 16, 2002.
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22
Sarah Whitebloom. “Sterling Crisis – Forex Frenzy Nets #900m.” The Observer,September 20, 1992.
23
Frederick Studermann and James Blitz. “Revelations on UK Exit from ERM Gofrom Drama to Farce.” Financial Times, Thursday, February 10, 2005, p. 2.
24
Stephen Duthie. “New Governor at Bank Negara Has Tough Job.” The AsianWall Street Journal, April 11, 1994.
25
Dirk Beveridge. “France Bolsters Defense of Franc, And Succeeds, For A Day.”The Associated Press, September 23, 1992. The article notes: “Foreignexchange speculators tried to pummel the French franc with waves of sellingWednesday, but a combined defense from the central banks of France and Germany frustrated their effort.”
26
Paul Draper and Joseph K.W. Fung. “Discretionary Government Interventionand the Mispricing of Index Futures.” Journal of Futures Markets, Vol. 23, No.12, 2003, pp. 1159-1189. Draper and Fung [2003] point out that the HKMAintervened in the stock and stock index futures markets during a two-weekperiod beginning August 14 through 28, 1998. They state:…During that period, the government bought in excess of 7.3% of thetotal market capitalization of all stocks comprising the main marketindex. The government also indicated that its remaining free reserveswould allow it to build up its total holding to more than 30% of the totalmarket capitalization of the index stocks, creating a substantial potentialthreat to the market and the arbitrage process.
27
Joseph Yam. Hong Kong Monetary Authority. “Coping with Financial Turmoil.”Inside Asia Lecture 1998, Sydney Australia, November 23, 1998. Mr. Yam notesin his speech that August 1998 was a particularly good time for speculators toimplement their attempt at market manipulation because stock trading volumewas about one-third of its usual amount, there was negative news abouteconomic growth, and there were rumors that the currency peg might beabandoned.
28
Shorting individual stocks is sometimes hard to do as the shares shorted have tobe borrowed from someone first. It is as easy to go short as to go long with stockindex futures. Moreover, traders are able to avoid individual company risk bytrading stock index futures.
29
Joseph Yam. Hong Kong Monetary Authority. “Coping with Financial Turmoil.”Inside Asia Lecture 1998, Sydney Australia, November 23, 1998.
30
Joseph Yam. Hong Kong Monetary Authority. “Coping with Financial Turmoil.”Inside Asia Lecture 1998, Sydney Australia, November 23, 1998.
31
Professors Draper and Fung argue:[Central bank] Intervention, however, created a large negative basisbetween the index and the futures, a reflection of the increased difficulty and cost of short selling due to government intervention. The largenegative basis lasted for a month following intervention, suggesting thatgovernment action created a risk element impeding arbitrage. A possibleexplanation arises from the low liquidity observed in the stock market
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TRADING CATALYSTSand the potential for substantial further intervention. These factorsincreased…the potential cost of covering or rolling over short stock positions…The risk of conducting index arbitrage was aggravated by theabsence of term repos in the stock loan market…Despite futures being“cheap”, natural holders of stocks did not appear to sell stocks and buyfutures, nor did they lend out stocks at (expensive) repo rates despite theapparent profitability of lending.Paul Draper and Joseph K.W. Fung. “Discretionary Government Interventionand the Mispricing of Index Futures.” Journal of Futures Markets, Vol. 23, No.12, 2003, p. 1163.
32
St