American Economic Review Vol. 108 No. 1 2018

Bid Shading and Bidder Surplus in the US Treasury Auction System

Ali Hortaçsu¹; Jakub Kastl²; Allen Zhang³

¹ Department of Economics, University of Chicago, 1126 E. 59th Street, Chicago, IL 60637, and NBER (email: ) · ² Department of Economics, Princeton University, Fisher Hall, Princeton, NJ 08544, NBER and CEPR (email: ) · ³ Model Risk Management, Fannie Mae, 3900 Wisconsin Avenue NW, Washington, DC 20016 (email: )

Abstract

We 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.

DOI

10.1257/aer.20160675

Volume

108

Issue

1

Pages

147-169

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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