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Bidder Participation and Information in Currency Auctions

  • Rafael Romeu
  • Lawrence Ausubel
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    This paper studies the participation and performance of sophisticated versus unsophisticated auction participants in an environment with numerous bidders, uncertainty, and asymmetric information. We examine multi-unit, pay-as-bid, currency auctions conducted by the Central Bank of Venezuela. We find that sophisticated bidders outperform their less sophisticated rivals during periods of high volatility, apparently as a result of their superior informationgathering ability. The result is consistent across both quantity (sophisticated bidders win more market share) and price (sophisticated bidders pay lower premiums). The result is consistent with the view that a pay-as-bid auction format may be detrimental to participation by less-informed bidders.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/157.

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    Length: 46
    Date of creation: 01 Aug 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/157
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    1. Lawrence M. Ausubel & Paul Milgrom, 2002. "Ascending Auctions with Package Bidding," Working Papers 02004, Stanford University, Department of Economics.
    2. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Microeconomics 9903002, EconWPA.
    3. Bindseil, Ulrich & Nyborg, Kjell G. & Strebulaev, Ilya A., 2004. "Bidding and Performance in Repo Auctions: Evidence from ECB Open Market Operations," University of California at Los Angeles, Anderson Graduate School of Management qt9878h0kn, Anderson Graduate School of Management, UCLA.
    4. Keloharju, Matti & Nyborg, Kjell G. & Rydqvist, Kristian, 2004. "Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions," University of California at Los Angeles, Anderson Graduate School of Management qt6v17p79w, Anderson Graduate School of Management, UCLA.
    5. Rafael Romeu, 2003. "An Intraday Pricing Model of Foreign Exchange Markets," IMF Working Papers 03/115, International Monetary Fund.
    6. James J. Heckman, 1977. "Dummy Endogenous Variables in a Simultaneous Equation System," NBER Working Papers 0177, National Bureau of Economic Research, Inc.
    7. Peter Cramton, 2002. "Spectrum Auctions," Papers of Peter Cramton 01hte, University of Maryland, Department of Economics - Peter Cramton, revised 16 Jul 2001.
    8. Ali Hortacsu & Samita Sareen, 2005. "Order Flow and the Formation of Dealer Bids: Information Flows and Strategic Behavior in the Government of Canada Securities Auctions," NBER Working Papers 11116, National Bureau of Economic Research, Inc.
    9. Martin D. D. Evans and Richard K. Lyons., 1999. "Order Flow and Exchange Rate Dynamics," Research Program in Finance Working Papers RPF-288, University of California at Berkeley.
    10. Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 675-89, November.
    11. Robert Alan Feldman & Vincent Reinhart, 1995. "Flexible Estimation of Demand Schedules and Revenue Under Different Auction Formats," IMF Working Papers 95/116, International Monetary Fund.
    12. Back, Kerry & Zender, Jaime F., 2001. "Auctions of divisible goods with endogenous supply," Economics Letters, Elsevier, vol. 73(1), pages 29-34, October.
    13. 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.
    14. 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.
    15. Tenorio, Rafael, 1997. "Some evidence on strategic quantity reduction in multiple unit auctions," Economics Letters, Elsevier, vol. 55(2), pages 209-213, August.
    16. Bagwell, Laurie Simon, 1992. " Dutch Auction Repurchases: An Analysis of Shareholder Heterogeneity," Journal of Finance, American Finance Association, vol. 47(1), pages 71-105, March.
    17. Goldberg, Linda & Tenorio, Rafael, 1997. "Strategic trading in a two-sided foreign exchange auction1," Journal of International Economics, Elsevier, vol. 42(3-4), pages 299-326, May.
    18. Richard K. Lyons, 2006. "The Microstructure Approach to Exchange Rates," MIT Press Books, The MIT Press, edition 1, volume 1, number 026262205x, June.
    19. Tenorio, Rafael, 1993. "Revenue Equivalence and Bidding Behavior in a Multi-unit Auction Market: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 302-14, May.
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