Strategic Behaviour and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions

Kristian Rydqvist, Kjell Nyborg and Matti Keloharju

No 3586, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study uniform price auctions using a dataset that includes individual bidders' demand schedules in Finnish Treasury auctions during the period 1992-99. Average underpricing amounts to 0.041% of face value. Theory suggests that underpricing may result from monopsonistic market power. We develop and test robust implications from this theory and find that it has little support in the data. For example, bidders' individual demand functions do not respond to increased competition in the manner predicted by the theory. We also present evidence that the Finnish Treasury acts strategically, taking into account the fact that the auctions are part of a repeated game between the Treasury and the primary dealers. Empirically, the main driver behind bidder behaviour and underpricing is the volatility of bond returns. Since there is no evidence that bidders are risk averse, this suggests that private information and the winner's curse may play an important role in these auctions.

Keywords: Multiunit auctions; Uniform price; Treasury auctions; market power; Demand functions; Underpricing; Supply uncertainty; Seller behaviour (search for similar items in EconPapers)
JEL-codes: D44 G10 (search for similar items in EconPapers)
Date: 2002-10
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions (2005)
Working Paper: Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions (2004)
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