Bidder Participation and Information in Currency Auctions

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Bidder Participation and Information in Currency Auctions

Author Info

Rafael Romeu
Lawrence Ausubel

Abstract

This paper studies the participation and performance of sophisticated versus unsophisticated auction participants in an environment with numerous bidders, uncertainty, and asymmetric information. We examine multi-unit, pay-as-bid, currency auctions conducted by the Central Bank of Venezuela. We find that sophisticated bidders outperform their less sophisticated rivals during periods of high volatility, apparently as a result of their superior informationgathering ability. The result is consistent across both quantity (sophisticated bidders win more market share) and price (sophisticated bidders pay lower premiums). The result is consistent with the view that a pay-as-bid auction format may be detrimental to participation by less-informed bidders.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/157.

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Length: 46 pages
Date of creation: 19 Aug 2005
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Handle: RePEc:imf:imfwpa:05/157

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This paper has been announced in the following NEP Reports:

NEP-ALL-2005-10-22 (All new papers)
NEP-COM-2005-10-22 (Industrial Competition)
NEP-FMK-2005-10-22 (Financial Markets)

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