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Speculative Attacks: A Laboratory Study in Continuous Time

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  • Yin-Wong Cheung

    (University of California, Santa Cruz)

  • Daniel Friedman

    (University of California, Santa Cruz)

Abstract

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.

Suggested Citation

  • Yin-Wong Cheung & Daniel Friedman, 2009. "Speculative Attacks: A Laboratory Study in Continuous Time," Working Papers 072009, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:072009
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    Cited by:

    1. Shurchkov, Olga, 2016. "Public announcements and coordination in dynamic global games: Experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 61(C), pages 20-30.
    2. repec:eee:jeborg:v:145:y:2018:i:c:p:495-510 is not listed on IDEAS
    3. repec:eee:jeborg:v:140:y:2017:i:c:p:91-119 is not listed on IDEAS
    4. Farshid Pourshahabi & Nazar Dahmardeh, 2015. "Economic Sanctions, Speculative Attacks and Currency Crisis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(2), pages 340-355, February.
    5. Tasneem, Dina & Engle-Warnick, Jim & Benchekroun, Hassan, 2017. "An experimental study of a common property renewable resource game in continuous time," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 91-119.
    6. Robin Pope & Reinhard Selten & Sebastian Kube & Jürgen von Hagen, 2006. "Experimental Evidence on the Benefits of Eliminating Exchange Rate Uncertainties and Why Expected Utility Theory causes Economists to Miss Them," Labsi Experimental Economics Laboratory University of Siena 010, University of Siena.
    7. Taketa, Kenshi & Suzuki-Löffelholz, Kumi & Arikawa, Yasuhiro, 2009. "Experimental analysis on the role of a large speculator in currency crises," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 602-617, October.
    8. repec:pit:wpaper:376 is not listed on IDEAS
    9. Olga Shurchkov, 2013. "Coordination and learning in dynamic global games: experimental evidence," Experimental Economics, Springer;Economic Science Association, vol. 16(3), pages 313-334, September.
    10. Schotter, Andrew & Yorulmazer, Tanju, 2009. "On the dynamics and severity of bank runs: An experimental study," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 217-241, April.
    11. Makoto Nirei & Theodoros Stamatiou & Vladyslav Sushko, 2012. "Stochastic Herding in Financial Markets Evidence from Institutional Investor Equity Portfolios," BIS Working Papers 371, Bank for International Settlements.
    12. Ciril Bosch-Rosa, 2014. "That's how we roll: an experiment on rollover risk," SFB 649 Discussion Papers SFB649DP2014-048, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

    More about this item

    Keywords

    Currency Crisis; Speculative Attack; Laboratory Experiment; Coordination Game; Pre-emption; Large Player;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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