Investigating the feasibility of the double-play strategy: evidence from Hong Kong's speculative attacks

This paper examines the 'double-play' strategy adopted by speculators during currency attacks in Hong Kong. We modify the speculators' objective function to interpret how they earned potential returns from the automatic mechanism of the linked exchange rate system. Furthermore, we investigate the dynamic conditional correlations among currency, stock and derivatives markets, and identify the key determinants for these relationships during speculative attacks. Our findings offer a comprehensive insight into the behaviour of speculators during currency attacks, and provide compelling empirical support for the impact of central bank interventions on market dynamics.