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

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  • MATTI KELOHARJU
  • KJELL G. NYBORG
  • KRISTIAN RYDQVIST

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 data set of Finnish Treasury auctions. A reason may be that the Treasury acts strategically by determining supply after observing bids, apparently treating the auctions as a repeated game between itself and primary dealers. Bidder behavior and underpricing react to the volatility of bond returns in a way that suggests bidders adjust for the winner's curse.

Suggested Citation

  • Matti Keloharju & Kjell G. Nyborg & Kristian Rydqvist, 2005. "Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions," Journal of Finance, American Finance Association, vol. 60(4), pages 1865-1902, August.
    • Handle: RePEc:bla:jfinan:v:60:y:2005:i:4:p:1865-1902
    DOI: 10.1111/j.1540-6261.2005.00782.x
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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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