Order Flow and the Formation of Dealer Bids: Information Flows and Strategic Behavior in the Government of Canada Securities Auctions

Ali Hortacsu and Samita Sareen ()

No 11116, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Is order-flow an important component of private information possessed by traders in government securities markets? Utilizing a detailed data set on Government of Canada securities auctions, we argue that the answer is yes. Direct participation in these auctions is limited to government securities dealers. However, non-dealer customers can also submit bids through dealers. We document patterns of strategic behavior by both sides of the market, dealers and customers, that support the hypothesis that customer bids provide valuable order-flow information to dealers. Dealer bids respond to privately observed customer bids, and dealers observing customer bid can predict the auction cutoff price better. Customers also respond strategically to dealers' use of the information contained in their bids.

JEL-codes: G1 L1 (search for similar items in EconPapers)
Date: 2005-02
New Economics Papers: this item is included in nep-fin
Note: IO
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Citations: View citations in EconPapers (6)

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