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Bid Shading and Bidder Surplus in the U.S. Treasury Auction System

Ali Hortaçsu, Jakub Kastl, Allen Zhang

NBER Working Paper No. 24024
Issued in November 2017
NBER Program(s):Asset Pricing Program, Industrial Organization Program

We analyze bidding data from uniform price auctions of U.S. Treasury bills and notes between July 2009-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 U.S. 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 3 basis points across the sample period along with efficiency losses around 2 basis points.

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Document Object Identifier (DOI): 10.3386/w24024

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