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Order Flow and the Formation of Dealer Bids in Treasury Auctions

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Listed:
  • Ali Hortacsu
  • Samita Sareen

Abstract

Using data on Government of Canada securities auctions, this paper shows that in countries where direct access to primary debt issuance is restricted to government securities dealers, "order-flow" information is potentially the key source of private information for these security dealers. "Order-flow" information is revealed to a security dealer through his interactions with customers, who can place bids in the auctions only through the security dealer. Since each dealer interacts with a different set of customers, they, in effect, see different portions of the market demand and supply curves, leading to differing private inferences of where the equilibrium price might lie. We document several pieces of evidence consistent with the strategic response of dealers and customers to the presence of valuable information in their interactions.

Suggested Citation

  • Ali Hortacsu & Samita Sareen, 2004. "Order Flow and the Formation of Dealer Bids in Treasury Auctions," 2004 Meeting Papers 50, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:50
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    References listed on IDEAS

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    Cited by:

    1. Ali Hortacsu & Jakub Kastl, 2008. "Testing for Common Values in Canadian Treasury Bill Auctions," Discussion Papers 07-053, Stanford Institute for Economic Policy Research.
    2. Ali Hortaçsu & David McAdams, 2010. "Mechanism Choice and Strategic Bidding in Divisible Good Auctions: An Empirical Analysis of the Turkish Treasury Auction Market," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 833-865.

    More about this item

    Keywords

    electricity markets; multi-unit auctions; learning;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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