Stabsseminar ved Kjell Nyborg

Kjell Nyborg, London Business School holder stabsseminar ved Institutt for foretaksøkonomi fredag 11.mai.

09.05.2001 - Karine Stephansen Uldal

Tema er Multiple Unit Auctions and Short Squeezes.

Tid og sted:
Fredag 11. mai, kl. 1215-1330 i møterommet i 9.etasje.

Abstract
This paper contributes to the theory of multiple unit auctions by showing how a potential short squeeze in the secondary (post-auction) market impacts on bidders' strategies and auction performance. We model both uniform price and discriminatory price auctions in a true multiple unit setting, where bidders can submit multiple bids for multiple units. Our model is cast in what appears to be a common value framework. However, we show that the possibility of a short squeeze introduces different valuations of the to-be-auctioned asset between short and long bidders. Equilibrium bidding strategies depend on pre-auction allocations and the size of the auction. Short squeezes are more likely to happen after discriminatory auctions than after uniform auctions. Furthermore, discriminatory auctions lead to (1) more price distortion; (2) higher revenue for an auctioneer; (3) more volatility in the secondary market. This shows that a central bank or sovereign treasury, say, may face a tradeoff between revenue maximization and market distortions when choosing the design of repo or treasury auctions. The probability of a short squeeze following a discriminatory auction tends to decrease with the auction size and increase with the market power of the largest long bidders. Asymptotically, as the auction size becomes arbitrarily large, the two types of auctions lead to equivalent outcomes.

Keywords: multiple unit auction, uniform auction, discriminatory auction, treasury auction, repo auction, short squeeze, market manipulation, market power.

JEL Classification Numbers: D44, G12, G20, D62.

Paper kan hentes fra instituttets hjemmeside på Internett.

Hans K. Hvide (9283)