Bidder Participation and Information in Currency Auctions

Rafael Romeu () and Lawrence Ausubel

No 2005/157, IMF Working Papers from International Monetary Fund

Abstract: This paper studies the participation and performance of sophisticated versus unsophisticated auction participants in an environment with numerous bidders, uncertainty, and asymmetric information. We examine multi-unit, pay-as-bid, currency auctions conducted by the Central Bank of Venezuela. We find that sophisticated bidders outperform their less sophisticated rivals during periods of high volatility, apparently as a result of their superior informationgathering ability. The result is consistent across both quantity (sophisticated bidders win more market share) and price (sophisticated bidders pay lower premiums). The result is consistent with the view that a pay-as-bid auction format may be detrimental to participation by less-informed bidders.

Keywords: WP; Inventory dev.; standard deviation; U.S. dollar; Lag Inv. dev.; Auctions; currency auctions; pay-as-bid auctions; asymmetric information; bank sophistication; market share; order flow effect; sophistication measure; lag Inv. Dev; number of bidder; descriptive statistics; bidding strategy; Currency markets; Currencies; Exchange rates; Securities markets; Emerging and frontier financial markets (search for similar items in EconPapers)
Pages: 46
Date: 2005-08-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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