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Informational Advantage and Information Structure: An Analysis of Canadian Treasury Auctions

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  • Ali Hortacsu

    (Department of Economics, University of Chicago)

  • Jakub Kastl

    (Stanford University)

Abstract

Several important auction settings, including treasury auctions in Canada and the U.S., have the feature that some bidders (dealers) observe the bids of a subset of other bidders (customers). Quantifying the economic advantage that informationally advantaged bidders derive from this institutional feature requires that we empirically distinguish between private vs. interdependent values paradigms. Bidders with private values who obtain information about rivals’ bids use this information to update their beliefs about the distribution of residual supply. With interdependent values, bidders also update their beliefs about the value of the good being auctioned. We use these differential updating effects to construct formal hypothesis tests of the presence of private vs. interdependent values. Using data from Canadian treasury auctions, we cannot reject the null hypothesis of private values in auctions of 3- and 12-month treasury bills. We also do not find evidence supporting the alternative hypothesis of interdependent values. We use the estimated model to quantify the value of observing customer bids to a dealer. We find that the extra information contained in customers’ bids leads on average to an increase in payoff equal to 13 ? 35% of the expected surplus of dealers. Creation Date: 2010-08 Revision Date:

Suggested Citation

  • Ali Hortacsu & Jakub Kastl, "undated". "Informational Advantage and Information Structure: An Analysis of Canadian Treasury Auctions," Discussion Papers 09-031, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:09-031
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    File URL: http://www-siepr.stanford.edu/repec/sip/09-031.pdf
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    References listed on IDEAS

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    1. Martin D.D. Evans & Richard K. Lyons, 2017. "Order Flow and Exchange Rate Dynamics," World Scientific Book Chapters, in: Studies in Foreign Exchange Economics, chapter 6, pages 247-290, World Scientific Publishing Co. Pte. Ltd..
    2. Luciano I. De Castro & Alvaro Riascos, 2007. "Characterization of Bidding Behavior in Multi-Unit," Documentos CEDE 4382, Universidad de los Andes, Facultad de Economía, CEDE.
    3. Lyons, Richard K., 1995. "Tests of microstructural hypotheses in the foreign exchange market," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 321-351.
    4. James T. E. Chapman & David McAdams & Harry J. Paarsch, 2007. "Bounding Revenue Comparisons across Multi-Unit Auction Formats under ε-Best Response," American Economic Review, American Economic Association, vol. 97(2), pages 455-458, May.
    5. de Castro, Luciano I. & Riascos, Alvaro, 2009. "Characterization of bidding behavior in multi-unit auctions," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 559-575, September.
    6. repec:bla:jfinan:v:53:y:1998:i:2:p:431-465 is not listed on IDEAS
    7. Nyborg, Kjell G. & Sundaresan, Suresh, 1996. "Discriminatory versus uniform Treasury auctions: Evidence from when-issued transactions," Journal of Financial Economics, Elsevier, vol. 42(1), pages 63-104, September.
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    Cited by:

    1. Jason Allen & Ali Hortaçsu & Jakub Kastl, 2011. "Analyzing Default Risk and Liquidity Demand during a Financial Crisis: The Case of Canada," Staff Working Papers 11-17, Bank of Canada.
    2. Hortaçsu, Ali, 2011. "Recent progress in the empirical analysis of multi-unit auctions," International Journal of Industrial Organization, Elsevier, vol. 29(3), pages 345-349, May.

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    More about this item

    Keywords

    multiunit auctions; treasury auctions; structural estimation; nonparametric identification and estimation; test for common values;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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