38,340 research outputs found
Order Flow and the Formation of Dealer Bids: An Analysis of Information and Strategic Behavior in the Government of Canada Securities Auctions
Using data on Government of Canada securities auctions, this paper shows that in countries where direct access to primary issuance is restricted to government securities dealers, Order-flow" information is a key source of private information for these security dealers. Order-flow information is revealed to a security dealer through his interactions with customers, who can place bids in the auctions only through the security dealer. Since each dealer interacts with a different set of customers, they, in effect, see different portions of the market demand and supply curves, leading to differing private inferences of where the equilibrium price might.Treasury auctions, Behavioural finance
Generalized reduced-form auctions: a network-flow approach
We develop a network-flow approach for characterizing interim-allocation rules that can be implemented by ex post allocations. Our method can be used to characterize feasible interim allocations in general multi-unit auctions where agents face capacity constraints, both ceilings and floors. Applications include a variety of settings of practical interest, ranging from individual and group-specific capacity constraints, set-aside sale, partnership dissolution, and government license reallocation.Reduced-form auctions, network-flow approach, feasible circulation flow, paramodular capacity constraints
Order Flow and the Formation of Dealer Bids: Information Flows and Strategic Behavior in the Government of Canada Securities Auctions
Is order-flow an important component of private information possessed by traders in government securities markets? Utilizing a detailed data set on Government of Canada securities auctions, we argue that the answer is yes. Direct participation in these auctions is limited to government securities dealers. However, non-dealer customers can also submit bids through dealers. We document patterns of strategic behavior by both sides of the market, dealers and customers, that support the hypothesis that customer bids provide valuable order-flow information to dealers. Dealer bids respond to privately observed customer bids, and dealers observing customer bid can predict the auction cutoff price better. Customers also respond strategically to dealers' use of the information contained in their bids.
Tragedy of the common canal
This paper uses laboratory experiments to investigate the effects of alternative solutions to a common-pool resource with a unidirectional flow. The focus is on the comparative economic efficiency of communications, bilateral “Coasian” bargaining, auctions and price-based allocations. All treatments improve allocative efficiency relative to a baseline environment. Communication and bilateral bargaining are not generally as effective as market allocations. An exogenously imposed, optimal fee results in the greatest efficiency gain, followed by auction allocations that determine the usage fee endogenously.externalities, experiments, auctions, Coasian bargaining, common pool resource
Testing for Common Values in Canadian Treasury Bill Auctions
We develop a test for common values in auctions in which some bidders possess information about rivals’ bids. This information causes a bidder to bid differently when she has a private value than when her value depends on rivals’ information. In a divisible good setting, such as treasury bill auctions, bidders with private values who obtain information about rivals’ bids use this information only to update their prior about the distribution of residual supply. In the model with a common value component, they also update their prior about the value of the good being auctioned.We apply the data from the Canadian treasury bill market, where some bidders have to route their bids through dealers who also submit bids on their own. Furthermore, we use the structural model to estimate the value of customer order flow to a dealer. We find that the extra information contained in customers’ bids leads on average to an increase in payoff equal to about 0.5 of a basis point, or 32% of the expected surplus of dealers from participating in these auctions.multiunit auctions, treasury auctions, structural estimation, nonparametric identification and estimation, test for common value
Contingent Fees in Order Flow Auctions
Many early order flow auction designs handle the payment for orders when they
execute on the chain rather than when they are won in the auction. Payments in
these auctions only take place when the orders are executed, creating a free
option for whoever wins the order. Bids in these auctions set the strike price
of this option rather than the option premium. This paper develops a simple
model of an order flow auction and compares contingent fees with upfront
payments as well as mixtures of the two. Results suggest that auctions with a
greater share of the payment contingent on execution have lower execution
probability, lower revenue, and increased effective spreads in equilibrium. A
Reputation system can act as a negative contingent fee, partially mitigating
the downsides; however, unless the system is calibrated perfectly, some of the
undesirable qualities of the contingent fees remain. Results suggest that
designers of order flow auctions should avoid contingent fees whenever
possible
Clearing price distributions in call auctions
We propose a model for price formation in financial markets based on clearing
of a standard call auction with random orders, and verify its validity for
prediction of the daily closing price distribution statistically. The model
considers random buy and sell orders, placed following demand- and supply-side
valuation distributions; an equilibrium equation then leads to a distribution
for clearing price and transacted volume. Bid and ask volumes are left as free
parameters, permitting possibly heavy-tailed or very skewed order flow
conditions. In highly liquid auctions, the clearing price distribution
converges to an asymptotically normal central limit, with mean and variance in
terms of supply/demand-valuation distributions and order flow imbalance. By
means of simulations, we illustrate the influence of variations in order flow
and valuation distributions on price/volume, noting a distinction between high-
and low-volume auction price variance. To verify the validity of the model
statistically, we predict a year's worth of daily closing price distributions
for 5 constituents of the Eurostoxx 50 index; Kolmogorov-Smirnov statistics and
QQ-plots demonstrate with ample statistical significance that the model
predicts closing price distributions accurately, and compares favourably with
alternative methods of prediction
Algorithms as Mechanisms: The Price of Anarchy of Relax-and-Round
Many algorithms that are originally designed without explicitly considering
incentive properties are later combined with simple pricing rules and used as
mechanisms. The resulting mechanisms are often natural and simple to
understand. But how good are these algorithms as mechanisms? Truthful reporting
of valuations is typically not a dominant strategy (certainly not with a
pay-your-bid, first-price rule, but it is likely not a good strategy even with
a critical value, or second-price style rule either). Our goal is to show that
a wide class of approximation algorithms yields this way mechanisms with low
Price of Anarchy.
The seminal result of Lucier and Borodin [SODA 2010] shows that combining a
greedy algorithm that is an -approximation algorithm with a
pay-your-bid payment rule yields a mechanism whose Price of Anarchy is
. In this paper we significantly extend the class of algorithms for
which such a result is available by showing that this close connection between
approximation ratio on the one hand and Price of Anarchy on the other also
holds for the design principle of relaxation and rounding provided that the
relaxation is smooth and the rounding is oblivious.
We demonstrate the far-reaching consequences of our result by showing its
implications for sparse packing integer programs, such as multi-unit auctions
and generalized matching, for the maximum traveling salesman problem, for
combinatorial auctions, and for single source unsplittable flow problems. In
all these problems our approach leads to novel simple, near-optimal mechanisms
whose Price of Anarchy either matches or beats the performance guarantees of
known mechanisms.Comment: Extended abstract appeared in Proc. of 16th ACM Conference on
Economics and Computation (EC'15
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