Bid Shading and Bidder Surplus in the US Treasury Auction System†

Bid Shading and Bidder Surplus in the US Treasury Auction System† AbstractWe analyze bidding data from uniform price auctions of US Treasury bills and notes between July 2009 and October 2013. Primary dealers consistently bid higher yields compared to direct and indirect bidders. We estimate a structural model of bidding that takes into account informational asymmetries introduced by the bidding system employed by the US Treasury. While primary dealers' estimated willingness-to-pay is higher than direct and indirect bidders’, their ability to bid-shade is even higher, leading to higher yield/lower price bids. Total bidder surplus averaged to about three basis points across the sample period along with efficiency losses around two basis points. (JEL D44, E63, H63) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Bid Shading and Bidder Surplus in the US Treasury Auction System†

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Publisher
American Economic Association
Copyright
Copyright © 2018 © American Economic Association
ISSN
0002-8282
D.O.I.
10.1257/aer.20160675
Publisher site
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Abstract

AbstractWe analyze bidding data from uniform price auctions of US Treasury bills and notes between July 2009 and October 2013. Primary dealers consistently bid higher yields compared to direct and indirect bidders. We estimate a structural model of bidding that takes into account informational asymmetries introduced by the bidding system employed by the US Treasury. While primary dealers' estimated willingness-to-pay is higher than direct and indirect bidders’, their ability to bid-shade is even higher, leading to higher yield/lower price bids. Total bidder surplus averaged to about three basis points across the sample period along with efficiency losses around two basis points. (JEL D44, E63, H63)

Journal

American Economic ReviewAmerican Economic Association

Published: Jan 1, 2018

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