Underwriting Government Debt Auctions: Auction Choice and Information Production

Sudip Gupta (), Rangarajan K. Sundaram () and Suresh Sundaresan ()
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Sudip Gupta: Gabelli School of Business, Fordham University, New York, New York 10023
Rangarajan K. Sundaram: Stern School of Business, New York University, New York, New York 10012
Suresh Sundaresan: Graduate School of Business, Columbia University, New York, New York 10027

Management Science, 2021, vol. 67, issue 5, 3127-3149

Abstract: In this paper, we examine a novel two-stage mechanism for selling government securities, wherein the dealers underwrite in the first stage the sale of securities, which are auctioned in stage 2 via either a discriminatory auction (DA) or a uniform price auction (UPA). Using proprietary data on auctions during 2006–2013, we find that (a) the first stage underwriting auction generates significant information, including predicting the likelihood of devolvement, and bid shading, and (b) the outcome of the underwriting auction may generate enough asymmetry amongst bidders that may make DA dominate UPA in certain counterfactual situations. We document that the unique two-stage auction design provides a market-driven mechanism to simultaneously insure against auction failures and produce information about the quality of the underlying issue.

Keywords: auctions; underwriting; bid shading; devolvement; information production (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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