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Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions





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    • *Matti Keloharju is from Helsinki School of Economics, Kjell Nyborg from the Norwegian School of Economics and Business Administration (NHH), and Kristian Rydqvist from Binghamton University. All three are affiliated with CEPR. This work was completed while Nyborg was at UCLA Anderson School of Management. We are indebted to Markku Malkamäki for institutional information and for making the data available to us, and to Tron Foss for help on technical issues. We are grateful to Matti Ilmanen of Nordea, Raija Hyvärinen, Antero Järvilahti, Jukka Järvinen, Ari-Pekka Lätti, and Juhani Rantala of the State Treasury of Finland, and to Jouni Parviainen and Samu Peura of Sampo Bank for providing us with institutional information. We also wish to thank Geir Bjønnes, Martin Dierker, David Goldreich, Alex Goriaev, Burton Hollifield, Ilan Kremer, Espen Moen, Suresh Paul, Avi Wohl, Jaime Zender and, especially, an anonymous referee, as well as seminar participants at the Bank of England, Binghamton University, Copenhagen Business School, Deutsche Bundesbank, European Central Bank, European Finance Association (Berlin 2002), Fondazione Eni Enrico Mattei, German Finance Association, Göteborg University, Helsinki and Swedish School of Economics joint seminar, Humboldt University in Berlin, Lausanne, London Business School, London School of Economics, Nordea, Norwegian School of Management (BI), Norwegian School of Economics and Business Administration (NHH), Stanford, State Treasury of Finland, University of Bergen, University of Frankfurt, University of Mannheim, Western Finance Association (Utah 2002), and the UK Debt Management Office for comments and suggestions. Finally, we want to thank Helsinki School of Economics Support Foundation and Foundation for Savings Banks for financial support.


We contribute to the debate on the optimal design of multiunit auctions by developing and testing robust implications of the leading theory of uniform price auctions on the bid distributions submitted by individual bidders. The theory, which emphasizes market power, has little support in a data set of Finnish Treasury auctions. A reason may be that the Treasury acts strategically by determining supply after observing bids, apparently treating the auctions as a repeated game between itself and primary dealers. Bidder behavior and underpricing react to the volatility of bond returns in a way that suggests bidders adjust for the winner's curse.