Valuing Dealers' Informational Advantage: A Study of Canadian Treasury Auctions


  • Ali Hortaçsu,

    1. Dept. of Economics, University of Chicago, Chicago, IL 60637, U.S.A. and NBER;
    Search for more papers by this author
  • Jakub Kastl

    1. Dept. of Economics, Stanford University, Stanford, CA 94305, U.S.A. and NBER;
    Search for more papers by this author
    • We thank Steve Berry, Liran Einav, Ken Hendricks, Han Hong, Jon Levin, Rob Porter, Peter Reiss, Azeem Shaikh, Quang Vuong, and four anonymous referees for many helpful comments and suggestions, and especially Philip Haile for detailed comments on an earlier draft. Participants at The University of Minnesota Applied Microeconomics Workshop, SED 2008 meetings in Prague, seminars at the Bank of Canada, CERGE-EI, Chicago, Mannheim, NYU Stern, Queens, Stanford, Yale, and conferences on auctions at University College London and Penn State provided helpful feedback. Kastl is grateful for the hospitality and financial support from the Cowles Foundation at Yale University and for the financial support of National Science Foundation Grant SES-0752860. Hortaçsu is also grateful for the hospitality of the Cowles Foundation and the financial support of National Science Foundation Grant SES-0449625 and the Sloan Foundation. All remaining errors are ours.


In many financial markets, dealers have the advantage of observing the orders of their customers. To quantify the economic benefit that dealers derive from this advantage, we study detailed data from Canadian Treasury auctions, where dealers observe customer bids while preparing their own bids. In this setting, dealers can use information on customer bids to learn about (i) competition, that is, the distribution of competing bids in the auction, and (ii) fundamentals, that is, the ex post value of the security being auctioned. We devise formal hypothesis tests for both sources of informational advantage. In our data, we do not find evidence that dealers are learning about fundamentals. We find that the “information about competition” contained in customer bids accounts for 13–27% of dealers' expected profits.