Scandinavian Working Papers in Economics

SIFR Research Report Series,
Institute for Financial Research

No 3: Winner's Curse in Discriminatory Price Auctions: Evidence from the Norwegian Treasury Bill Auctions

Geir Hoidal Bjonnes
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Geir Hoidal Bjonnes: Swedish Institute for Financial Research, Postal: Saltmätargatan 19A, SE-113 59 Stockholm, Sweden

Abstract: This paper studies bidder behavior using a detailed data set consisting of actual bid distributions in Norwegian Treasury bill auctions held during 1993-1998. The empirical results presented suggest that observed bidder behavior is consistent with an adjustment for the winner’s curse. Bidders shade and disperse their bids more, and reduce quantity demanded, when the number of competing bidders increases. Tests suggest that there are some differences between the individual bidders. For instance, the most frequent bidders tend to disperse their bids more than other bidders, on average. Differences in bid shading and bidder profits can not be explained by bidder frequency or bidder size.

Keywords: Auctions; Treasury Securities; Winner's Curse

JEL-codes: D44; G10

36 pages, December 10, 2001

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