 Pre-auction short positions and impacts on primary dealers’ bidding behavior in US Treasury auctionsLeonard Tchuindjo Journal of Banking & Finance, 2015, vol. 59, issue C, 193-201 Abstract: We model the uniform-price US Treasury security auction as a static symmetric game with incomplete information in which each player is a primary dealer who submits a demand schedule given two independent sources of private information: her/his pre-auction short position of the auctioned security and her/his valuation of this security. Under the assumptions of constant marginal value and additive separability of the demand schedule, we obtain closed-form solutions for the dealer’s optimal demand schedule, and we find that her/his pre-auction short position impacts her/his bidding behavior in three ways. First, the primary dealer’s demand for the auctioned security increases with her/his pre-auction short position. Second, the primary dealer’s differential bid shading decreases with her/his pre-auction short position. Third, primary dealers with higher pre-auction short positions assign lower values to the auctioned security. Based on our findings, we propose policy recommendations that would allow the US Treasury to increase taxpayers’ revenue. Keywords: Treasury auction; Primary dealers; Short position; Demand schedule; Bayesian-Nash equilibrium (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:59:y:2015:i:c:p:193-201 DOI: 10.1016/j.jbankfin.2015.06.006 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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