Bidder Participation and Information in Currency Auctions

August 1, 2005

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Format: Chicago

Rafael Romeu, and Lawrence Ausubel. Bidder Participation and Information in Currency Auctions, (USA: International Monetary Fund, 2005) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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 informationgathering 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.

Subject: Banking, Currencies, Currency markets, Emerging and frontier financial markets, Exchange rates, Financial markets, Foreign exchange, Money, Securities markets

Keywords: Asymmetric information, Auctions, Bank sophistication, Bidding strategy, Currencies, Currency auctions, Currency markets, Descriptive statistics, Emerging and frontier financial markets, Exchange rates, Inventory dev., Lag Inv. Dev, Lag Inv. dev., Market share, Number of bidder, Order flow effect, Pay-as-bid auctions, Securities markets, Sophistication measure, Standard deviation, U.S. dollar, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/157
Stock No:

WPIEA2005157
ISBN:

9781451861761
ISSN:

1018-5941

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