Working Paper: CEPR ID: DP10112
Authors: Kristian Rydqvist; Mark Wu
Abstract: 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.
Keywords: Discriminatory Auction; Market Power; Ownership Distribution; Short Squeeze; When-Issued Market
JEL Codes: D44; G10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| negative preauction inventory (D44) | higher bid prices (D44) |
| negative preauction inventory (D44) | larger quantities demanded (E41) |
| positive preauction inventory (D44) | higher bid prices (D44) |
| positive preauction inventory (D44) | smaller quantities demanded (D12) |
| preauction inventory imbalances (D44) | less underpricing (D41) |
| preauction ownership (H82) | bidding strategies (D44) |
| periods of higher uncertainty (E32) | weaker effects of preauction ownership (D44) |