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Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions

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  • Keloharju, Matti
  • Nyborg, Kjell G.
  • Rydqvist, Kristian

Abstract

We contribute to the debate on the optimal design of multiunit auctions by developing and testing robust implications of the leading theory of uniform price auctions on the bid distributions submitted by individual bidders. The theory, which emphasizes market power, has little support in a dataset of Finnish Treasury auctions. A reason may be that the Treasury acts strategically by determining supply after observing bids, apparently taking into account that the auctions are part of a repeated game between the Treasury and the primary dealers. Bidder behavior and underpricing are affected by the volatility of bond returns in a way that suggests bidders adjust for the winner’s curse.

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Bibliographic Info

Paper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number qt6v17p79w.

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Date of creation: 01 May 2004
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Handle: RePEc:cdl:anderf:qt6v17p79w

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Web page: http://www.escholarship.org/repec/anderson_fin/
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Keywords: Multiunit auctions; uniform price auctions; treasury auctions; market power; JEL Classification Numbers: D44; G10;

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  1. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Kjell G. Nyborg & Ilya A. Strebulaev, 2003. "Multiple Unit Auctions and Short Squeezes," Working Papers 2003.27, Fondazione Eni Enrico Mattei.
  3. 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.
  4. Ilan Kremer, 2004. "Underpricing and Market Power in Uniform Price Auctions," Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 849-877.
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  8. Matti Keloharju & Markku Malkamäki & Kjell G. Nyborg & Kristian Rydqvist, 2004. "A descriptive analysis of the Finnish treasury bond market 1991–1999," Finance 0405017, EconWPA.
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  17. Hoidal Bjonnes, Geir, 2001. "Winner's Curse in Discriminatory Price Auctions: Evidence from the Norwegian Treasury Bill Auctions," SIFR Research Report Series 3, Institute for Financial Research.
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  19. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
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