DP10112 Pre-Auction Inventory and Bidding Behavior?An Analysis of Canadian Treasury Auctions

Author(s): Kristian Rydqvist, Mark Wu
Publication Date: August 2014
Keyword(s): discriminatory auction, market power, ownership distribution, short squeeze, when-issued market
JEL(s): D44, G10
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10112

Many bidders enter the Government of Canada securities auctions with short 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 and demand larger quantities than do bidders with neutral pre-auction inventory. The effects of pre-auction ownership on bidder behavior vary with the auction cycle and with uncertainty. We argue that post-auction short squeeze does not explain the observed relation between securities prices and ownership structure.