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Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions
Author(s) -
KELOHARJU MATTI,
NYBORG KJELL G.,
RYDQVIST KRISTIAN
Publication year - 2005
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2005.00782.x
Subject(s) - common value auction , treasury , volatility (finance) , economics , microeconomics , winner's curse , monetary economics , business , financial economics , archaeology , history
We contribute to the debate on the optimal design of multiunit auctions by developing and testing robust implications of the leading theory of uniform price auctions on the bid distributions submitted by individual bidders. The theory, which emphasizes market power, has little support in a data set of Finnish Treasury auctions. A reason may be that the Treasury acts strategically by determining supply after observing bids, apparently treating the auctions as a repeated game between itself and primary dealers. Bidder behavior and underpricing react to the volatility of bond returns in a way that suggests bidders adjust for the winner's curse.