Market Manipulation, Price Bubbles, and a Model of the U.S. Treasury Securities Auction Market
This paper models the U.S. Treasury securities auction market and demonstrates that market manipulation can occur in a rational equilibrium. It is a dynamic model with traders participating in a “when-issued” market, a Treasury auction, and a resale market. Manipulations occur when dealers in the when-issued market use their knowledge of the net order flow in order to corner the auction and squeeze the shorts (from the when-issued market). This manipulation equilibrium generates bubbles in Treasury security prices and specials in repo rates. We also compare discriminatory and uniform price auction rules with respect to manipulation. Our analysis shows that manipulations can occur in long-run equilibrium under discriminatory price auctions, but not under uniform price auctions.
Volume (Year): 33 (1998)
Issue (Month): 02 (June)
|Contact details of provider:|| Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK|
Web page: http://journals.cambridge.org/jid_JFQ
When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:33:y:1998:i:02:p:255-289_00. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters)
If references are entirely missing, you can add them using this form.