The auction of financial securities: A study of the treasury auction market

This dissertation looks at the differences between a single price auction format versus a multiple price auction format for U.S. Treasury securities. This study has focused on the differences in demand that arise under different auction formats because of the theorized presence of a downward shading of bids in the multiple price auction in order to avoid a winner's curse in this auction format. A similar downward shading of bids is not expected in the single price auction format because there is no winners curse with this format.; This study has also looked at the reaction of market participants to the change in the auction format for dealers. The profit of auction participants is anticipated to decline under the single price auction as opposed to the multiple price auction because of the anticipated increase in demand at the auction. The decline of profits for the auction participants is associated with an increase in auction revenues for the seller.; The statistical results support the presence of a winner's curse in the multiple price auction format that is not apparent in the single price auction format. This finding is a contradiction to many experts who think that because the Treasury market is a complete market that there should not be a significant downward shading of bids in the auction itself.; The event study results provide little evidence that market participants anticipated a decline in dealer profits with the implementation of the single price auction format. The participation in the auction appears to have limited economic significance for dealers.; Overall the results of this research indicate that the choice of auction format is significant for the auctioneer and not as significant for auction participants. There is evidence that supports the idea that the use of a single price auction format for multiple good auctions will eliminate a downward shading of bids due to a winner's curse which should lead to higher revenue for the auctioneer.