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Order Flow and the Formation of Dealer Bids: Information Flows and Strategic Behavior in the Government of Canada Securities Auctions

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Author Info
Ali Hortacsu
Samita Sareen

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Abstract

Is order-flow an important component of private information possessed by traders in government securities markets? Utilizing a detailed data set on Government of Canada securities auctions, we argue that the answer is yes. Direct participation in these auctions is limited to government securities dealers. However, non-dealer customers can also submit bids through dealers. We document patterns of strategic behavior by both sides of the market, dealers and customers, that support the hypothesis that customer bids provide valuable order-flow information to dealers. Dealer bids respond to privately observed customer bids, and dealers observing customer bid can predict the auction cutoff price better. Customers also respond strategically to dealers' use of the information contained in their bids.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11116.

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Date of creation: Feb 2005
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Handle: RePEc:nbr:nberwo:11116

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G1 - Financial Economics - - General Financial Markets
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ali Hortacsu & Steven L. Puller, 2005. "Understanding Strategic Bidding in Restructured Electricity Markets: A Case Study of ERCOT," NBER Working Papers 11123, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Nyborg, Kjell G. & Sundaresan, Suresh, 1996. "Discriminatory versus uniform Treasury auctions: Evidence from when-issued transactions," Journal of Financial Economics, Elsevier, vol. 42(1), pages 63-104, September. [Downloadable!] (restricted)
  4. Kjell G. Nyborg, 2004. "Multiple Unit Auctions and Short Squeezes," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 17(2), pages 545-580. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alan Mehlenbacher, 2007. "Multiagent System Simulations of Treasury Auctions," Department Discussion Papers 0709, Department of Economics, University of Victoria. [Downloadable!]
  2. Rafael Romeu & Lawrence Ausubel, 2005. "Bidder Participation and Information in Currency Auctions," IMF Working Papers 05/157, International Monetary Fund. [Downloadable!]
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This page was last updated on 2009-11-25.

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