Decision Sciences
4 years ago

Pre-auction inventory levels impact bidding behavior and auction performance significantly.

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Journal of Financial Markets
Pre-auction inventory and bidding behavior: Evidence from Canadian Treasury auctions
Kristian Rydqvist, Mark Wu

Paper Summary

Bidders in Canadian Treasury auctions with different pre-auction inventory lengths bid differently. Short and long bidders bid higher prices, want more securities, and submit fewer bids than neutral bidders. This leads to less underpricing in auctions with imbalanced pre-auction inventory. The concern for a post-auction short squeeze affects bidding strategies and auction performance.

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