Bidder Participation and Information in Currency Auctions

46 Pages Posted: 3 Mar 2006

See all articles by Lawrence M. Ausubel

Lawrence M. Ausubel

University of Maryland - Department of Economics

Rafael Romeu

International Monetary Fund (IMF)

Date Written: August 2005

Abstract

This paper studies the participation and performance of sophisticated versus unsophisticated auction participants in an environment with numerous bidders, uncertainty, and asymmetric information. We examine multi-unit, pay-as-bid, currency auctions conducted by the Central Bank of Venezuela. We find that sophisticated bidders outperform their less sophisticated rivals during periods of high volatility, apparently as a result of their superior information-gathering ability. The result is consistent across both quantity (sophisticated bidders win more market share) and price (sophisticated bidders pay lower premiums). The result is consistent with the view that a pay-as-bid auction format may be detrimental to participation by less-informed bidders.

Keywords: Auctions, currency auctions, pay-as-bid auctions, asymmetric information

JEL Classification: D44, F31, G15

Suggested Citation

Ausubel, Lawrence M. and Romeu, Rafael, Bidder Participation and Information in Currency Auctions (August 2005). IMF Working Paper No. 05/157, Available at SSRN: https://ssrn.com/abstract=888026

Lawrence M. Ausubel (Contact Author)

University of Maryland - Department of Economics ( email )

Tydings Hall
College Park, MD 20742
United States
301-405-3495 (Phone)
301-405-3542 (Fax)

Rafael Romeu

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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