Comparison of two parameterizations of the winner's curse model in a sample of Swedish Treasury auctions
Purpose – The purpose of this paper is to examine the underpricing effect in Treasury auctions. Design/methodology/approach – The paper compares two winner's curse models using a dataset on multi-unit auctions. The dataset is from Swedish Treasury auctions, which is under a discriminatory auction mechanism. One model is a single-unit equilibrium model assuming that each bidder bids for 100 percent of the auctioned securities, which is described by Wilson and solved by Levin and Smith. The other model is a multi-unit model calibrated by Goldreich using the US Treasury auctions data and assumes that each bidder bids for one unit of the auctioned securities. Findings – The empirical results show that, although both models work well in predicting the bid-shading, the multi-unit model fits the Swedish Treasury auctions data better than the single-unit model. Research limitations/implications – The evidence implies that bidders rationally adjust their bids due to the winner's curse/champion's plague. Originality/value – This study provides close quantitative predictions of the amount of bid-shading using both single-unit model of Wilson and multi-unit model of Goldreich, and indicates that winner's curse or champion's plague worries bidders in countries other than the USA.
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Volume (Year): 20 (2012)
Issue (Month): 2 ()
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References listed on IDEAS
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- Goldreich, David, 2007. "Underpricing in Discriminatory and Uniform-Price Treasury Auctions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(02), pages 443-466, June.
- Umlauf, Steven R., 1993. "An empirical study of the Mexican Treasury bill auction," Journal of Financial Economics, Elsevier, vol. 33(3), pages 313-340, June.
- Milgrom, Paul R & Weber, Robert J, 1982.
"A Theory of Auctions and Competitive Bidding,"
Econometric Society, vol. 50(5), pages 1089-1122, September.
- 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.
- Lawrence M. Ausubel, 2004. "An Efficient Ascending-Bid Auction for Multiple Objects," American Economic Review, American Economic Association, vol. 94(5), pages 1452-1475, December.
- Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
- Anlin Chen & Li-Wei Chen & Lanfeng Kao, 2010. "Leverage, liquidity and IPO long-run performance: evidence from Taiwan IPO markets," International Journal of Accounting and Information Management, Emerald Group Publishing, vol. 18(1), pages 31-38, February.
- Sushil Bikhchandani & Chi-fu Huang, 1993. "The Economics of Treasury Securities Markets," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 117-134, Summer.
- Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-64.
- Levin, Dan & Smith, James L, 1991. "Some Evidence on the Winner's Curse: Comment," American Economic Review, American Economic Association, vol. 81(1), pages 370-75, March.
- 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.
- Lawrence M. Ausubel & Peter Cramton, 1997. "Auctioning Securities," Papers of Peter Cramton 98wpas, University of Maryland, Department of Economics - Peter Cramton, revised Mar 1998.
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