Jakub Kastl (Princeton) will present:
"Bid Shading and Bidder Surplus in the U.S. Treasury Auction System"
at 3:00pm on Wednesday, March 23, 2016 in 310 Silsby


***THERE ARE STILL SEVERAL AVAILABLE SLOTS***

Please sign up for a meeting or lunch at:

https://docs.google.com/spreadsheets/d/1iWKYqSir7lPSoFlgywm_QCWedxemHC0_pOAXwm6A9gw/edit?usp=sharing


Abstract


We analyze detailed bidding data from auctions of Treasury bills and notes conducted between July 2009 and October 2013. The U.S. Treasury uses a uniform price auction system, which we
model building on the share auction model of Wilson (1979) and Kastl (2012). Our model takes into account informational asymmetries introduced by the primary dealership and indirect bidding
system employed by the U.S. Treasury. Building on the methods developed by Hortacsu (2002), Hortacsu and McAdams (2010), Kastl (2011), and Hortacsu and Kastl (2012), we estimate the
amount of bid shading undertaken by the bidders under the assumption of bidder optimization. Our method also enables to us to estimate the marginal valuations of bidders that rationalize the
observed bids under a private value framework. We find that primary dealers consistently bid higher yields in the auctions compared to direct and indirect bidders. Our model allows us to decompose
this difference into two components: difference in demand/willingness-to-pay, and difference in ability to shade bids. We find that while primary dealer willingness-to-pay is similar to or even
higher than direct and indirect bidders', their ability to bid-shade is higher, leading to higher yield bids. By computing the area under bidders' demand curves, we can also quantify the surplus that
bidders derive from the auctions. We find that total bidder surplus across the sample period was, on average, 2.3 basis points. By comparing the actual allocation to the one corresponding to the
maximum surplus, we also quantify the efficiency loss from the auctions, which was, on average, 2.25 basis points.






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