Bidder Behavior in Multiunit Auctions: Evidence from Swedish Treasury Auctions

Abstract

We analyze a unique data set on multiunit auctions, which contains the actual demand schedules of the bidders as well as the auctionawards in over 400 Swedish Treasury auctions. First, we document that bidders vary their prices, bid dispersion, and the quantity demanded in response to increased uncertainty at the time of bidding. Second,we find that bid shading can be explained by a winner 19s curse 13driven model in which each bidder submits only one bid, despite the fact that the bidders in our data set use much richer bidding strategies.

Bidding and Performance in Repo Auctions: Evidence from ECB Open Market Operations

“…There are no "customer bids." This allows a potentially less noisy inferences on bidder behavior than what has been possible in the treasury auction literature (see, e.g, Nyborg, Rydqvist, and Sundaresan, 2002). The auctions follow a regular cycle; there is one every Tuesday morning.…”

“…First, we compare and contrast bidder behavior and auction performance in repo auctions with what has been documented in treasury auctions [e.g. Nyborg, Rydqvist, and Sundaresan (2002)]. These important multiunit auctions are similar in terms of design and in having active secondary markets for the auctioned assets.…”

“…In treasury auctions, primary dealers buy to resell. The empirical evidence shows that bidders are less aggressive and underpricing is larger as volatility increases, suggesting that bidders have private information about the resale value and adjust rationally for the winner's curse [Cammack (1991), Nyborg, Rydqvist and Sundaresan (2002)]. 2 In repo auctions, bidding banks may be more concerned with covering their liquidity needs than turning a profit; they may be more concerned with the loser's nightmare than the winner's curse (Nyborg and Strebulaev, 2004).…”

“…Such risk aversion could arise because of limited depth in the interbank market or because short banks fear being squeezed (the loser's nightmare). Another contrast with treasury auctions [Nyborg, Rydqvist, and Sundaresan (2002)] is that auction size matters; discounts and underpricing are increasing in auction size. This is consistent with there being a shortage of the cheapest eligible collateral.…”

CDS Credit Event Auctions

“…Treasury auctions worldwide have been widely studied in the literature; see, e.g., Nyborg and Sundaresan (1996) on US auctions; Nyborg, Rydqvist, and Sundaresan (2002) on Swedish auctions; Keloharju, Nyborg, and Rydqvist (2005) on Finnish auctions; and Hortacsu or MacAdams (2010) on Turkish auctions.…”