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Rule Changes And Uncertainty In Discriminatory And Uniform Price Auctions

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  • Jaclyn Beierlein
  • Hideaki Kiyoshi Kato

Abstract

The auction literature indicates that uncertainty about the value of auctioned goods increases underpricing in discriminatory price auctions. Such uncertainty has a smaller effect on uniform price auctions because the pricing rule aggregates bidders' information. We find that uncertainty resulting from inexperience with an auction mechanism has similar effects. Using initial public offering (IPO) data from Japan and Israel, we find that average underpricing increases temporarily in Japan's discriminatory price auctions after changes in the auction rules, which suggests that bidders reduce their bids in response to uncertainty. Underpricing in Israel's uniform price auctions is not affected by rule changes.

Suggested Citation

  • Jaclyn Beierlein & Hideaki Kiyoshi Kato, 2007. "Rule Changes And Uncertainty In Discriminatory And Uniform Price Auctions," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 30(1), pages 73-90, March.
    • Handle: RePEc:bla:jfnres:v:30:y:2007:i:1:p:73-90
    DOI: 10.1111/j.1475-6803.2007.00203.x
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    References listed on IDEAS

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    1. Sara Castellanos, 2001. "Mexican treasury securities primary auctions," Theory workshop papers 357966000000000025, UCLA Department of Economics.
    2. Haile,P.A., 1999. "Auctions with resale," Working papers 33, Wisconsin Madison - Social Systems.
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    Cited by:

    1. Kerins, Frank & Kutsuna, Kenji & Smith, Richard, 2007. "Why are IPOs underpriced? Evidence from Japan's hybrid auction-method offerings," Journal of Financial Economics, Elsevier, vol. 85(3), pages 637-666, September.

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