Speculative Attacks: A Laboratory Study in Continuous Time

33 Pages Posted: 12 Mar 2009 Last revised: 31 Oct 2022

Multiple version iconThere are 2 versions of this paper

Date Written: February 27, 2009

Abstract

This working paper was written by Yin-Wong Cheung (University of California, Santa Cruz) and Daniel Friedman (University of California, Santa Cruz ).

We examine speculative attacks in a controlled laboratory environment featuring continuous time, size asymmetries, and varying amounts of public information. Attacks succeeded in 233 of 344 possible cases. When speculators have symmetric size and access to information: (a) weaker fundamentals increase the likelihood of successful speculative attacks and hasten their onset, and (b) contrary to some theory, success is enhanced by public access to information about either the net speculative position or the fundamentals. The presence of a larger speculator further enhances success, and experience with large speculators increases small speculators' response to the public information. However, giving the large speculator increased size or better information does not significantly strengthen his impact.

Keywords: Currency Crisis, Speculative Attack, Laboratory Experiment, Coordination Game, Pre-emption, Large Player

JEL Classification: F30, C73, C92

Suggested Citation

Institute for Monetary and Financial Research, Hong Kong, Speculative Attacks: A Laboratory Study in Continuous Time (February 27, 2009). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 07/2009, Journal of International Money and Finance, Vol. 28, No. 6, 2009, Available at SSRN: https://ssrn.com/abstract=1357223 or http://dx.doi.org/10.2139/ssrn.1357223

Hong Kong Institute for Monetary and Financial Research (Contact Author)

(HKIMR) ( email )

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Hong Kong
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