Speculative attacks: A laboratory study in continuous time Yin-Wong Cheung * , Daniel Friedman Department of Economics, University of California, Santa Cruz, CA 95064, USA JEL classification: F30 C73 C92 Keywords: Currency crisis Speculative attack Laboratory experiment Coordination game Preemption Large player abstract We examine speculative attacks in a controlled laboratory envi- ronment 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. Ó 2008 Elsevier Ltd. All rights reserved. 1. Introduction For more than 30 years, recurrent currency crises have confounded policy makers, and have chal- lenged economic theorists to find explanations. The ‘‘First Generation’’ models (e.g., Krugman, 1979; Flood and Garber, 1984) gave insight into the Latin American and other crises of the 1970s and early 1980s, but had difficulty accounting for later events such as the 1992 British Pound crisis. Theorists responded with ‘‘Second Generation’’ models of self-fulfilling crises (e.g., Obstfeld, 1995, 1996), leading to quite different policy implications. The 1997–1998 crisis in East Asia and other recent events inspired ‘‘Third Generation’’ models that focus on financial market imperfections. Most Second and Third Generation models feature strategic interactions among speculators and government agencies, and many have multiple equilibria. * Corresponding author. E-mail address: cheung@cats.ucsc.edu (Y.-W. Cheung). Contents lists available at ScienceDirect Journal of International Money and Finance journal homepage: www.elsevier.com/locate/jimf 0261-5606/$ – see front matter Ó 2008 Elsevier Ltd. All rights reserved. doi:10.1016/j.jimonfin.2008.08.006 Journal of International Money and Finance 28 (2009) 1064–1082