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Pre-auction inventory and bidding behavior: Evidence from Canadian Treasury auctions

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  • Rydqvist, Kristian
  • Wu, Mark

Abstract

Bidders enter the Government of Canada securities auctions with short, neutral, or long pre-auction inventory. We find that bidding strategies and auction performance vary with pre-auction ownership structure. Short and long bidders bid higher average prices, demand larger quantities, and submit fewer bids than do bidders with neutral pre-auction inventory. These bidding strategies imply less underpricing in auctions with aggregate pre-auction inventory tilted in one way or the other. We analyze whether a concern for post-auction short squeeze influences observed bidding strategies and auction performance.

Suggested Citation

  • Rydqvist, Kristian & Wu, Mark, 2016. "Pre-auction inventory and bidding behavior: Evidence from Canadian Treasury auctions," Journal of Financial Markets, Elsevier, vol. 30(C), pages 78-102.
    • Handle: RePEc:eee:finmar:v:30:y:2016:i:c:p:78-102
    DOI: 10.1016/j.finmar.2016.07.001
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    1. Narayan Bulusu, 2020. "Why Do Central Banks Make Public Announcements of Open Market Operations?," Staff Working Papers 20-35, Bank of Canada.
    2. Bo Young Chang & Jun Yang & Parker Liu, 2018. "The Cost of the Government Bond Buyback and Switch Programs in Canada," Staff Analytical Notes 2018-41, Bank of Canada.

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    More about this item

    Keywords

    Discriminatory auction; When-issued market; Ownership distribution; Market power; Short squeeze;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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