Comparison of two parameterizations of the winner's curse model in a sample of Swedish Treasury auctions
AbstractPurpose – The purpose of this paper is to examine the underpricing effect in Treasury auctions. Design/methodology/approach – The paper compares two winner's curse models using a dataset on multi-unit auctions. The dataset is from Swedish Treasury auctions, which is under a discriminatory auction mechanism. One model is a single-unit equilibrium model assuming that each bidder bids for 100 percent of the auctioned securities, which is described by Wilson and solved by Levin and Smith. The other model is a multi-unit model calibrated by Goldreich using the US Treasury auctions data and assumes that each bidder bids for one unit of the auctioned securities. Findings – The empirical results show that, although both models work well in predicting the bid-shading, the multi-unit model fits the Swedish Treasury auctions data better than the single-unit model. Research limitations/implications – The evidence implies that bidders rationally adjust their bids due to the winner's curse/champion's plague. Originality/value – This study provides close quantitative predictions of the amount of bid-shading using both single-unit model of Wilson and multi-unit model of Goldreich, and indicates that winner's curse or champion's plague worries bidders in countries other than the USA.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal International Journal of Accounting and Information Management.
Volume (Year): 20 (2012)
Issue (Month): 2 ()
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- Kjell G. Nyborg & Kristian Rydqvist & Suresh M. Sundaresan, 2002. "Bidder Behavior in Multiunit Auctions: Evidence from Swedish Treasury Auctions," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 394-424, April.
- Sushil Bikhchandani & Chi-fu Huang, 1993. "The Economics of Treasury Securities Markets," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 117-134, Summer.
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- Goldreich, David, 2007. "Underpricing in Discriminatory and Uniform-Price Treasury Auctions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(02), pages 443-466, June.
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