Bidder Participation and Information in Currency Auctions
46 Pages Posted: 3 Mar 2006
Date Written: August 2005
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
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