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Revenue Implications of Multi-Item Multi-Unit Auction Designs: Empirical Evidence from the U.S. Treasury Buyback Auctions

Listed author(s):
  • Longstaff, Francis A
  • Han, Bing
  • Merrill, Craig
Registered author(s):

We study an important recent series of multi-item multi-unit auctions conducted by the U.S. Treasury in retiring $67.5 billion of its debt. Consistent with auction theory, we find that bidders earn a small volatility-related expected profit as compensation for bearing the risk of the “winner’s curse.†We find that the Treasury is penalized for being “spread too thin†when including multiple bonds in a buyback auction. Thus, the multi-item design of the auction may not have been optimal from the Treasury’s perspective. In contrast, there is no evidence that the multi-unit aspect of the buyback affected the Treasury’s costs. These results have a number of implications for current models of multi-item and multi-unit auctions.

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File URL: http://www.escholarship.org/uc/item/7344v866.pdf;origin=repeccitec
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Paper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number qt7344v866.

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Date of creation: 29 Sep 2004
Handle: RePEc:cdl:anderf:qt7344v866
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Web page: http://www.escholarship.org/repec/anderson_fin/

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  14. Lind, Barry & Plott, Charles., 1989. "The Winner's Curse: Experiments with Buyers and with Sellers," Working Papers 699, California Institute of Technology, Division of the Humanities and Social Sciences.
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  28. 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.
  29. 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 733-764.
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