Working Paper: NBER ID: w11116
Authors: Ali Hortacsu; Samita Sareen
Abstract: Is order-flow an important component of private information possessed by traders in government securities markets? Utilizing a detailed data set on Government of Canada securities auctions, we argue that the answer is yes. Direct participation in these auctions is limited to government securities dealers. However, non-dealer customers can also submit bids through dealers. We document patterns of strategic behavior by both sides of the market, dealers and customers, that support the hypothesis that customer bids provide valuable order-flow information to dealers. Dealer bids respond to privately observed customer bids, and dealers observing customer bid can predict the auction cutoff price better. Customers also respond strategically to dealers' use of the information contained in their bids.
Keywords: Order Flow; Dealer Bids; Government Securities Auctions; Information Flows; Strategic Behavior
JEL Codes: G1; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Customer bids (D44) | Dealer bids (D44) |
| Customer bids timing (D44) | Dealers' bids timing (D44) |
| Access to more customer information (D16) | Bidding performance (D44) |
| Customer strategic behavior (D16) | Dealer bids timing (D44) |
| Customer bids timing (D44) | Dealer bids timing (D44) |