Underwriting Government Debt Auctions: Auction Choice and Information Production

57 Pages Posted: 28 Oct 2016 Last revised: 22 Dec 2019

See all articles by Sudip Gupta

Sudip Gupta

Fordham University - Finance Area

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance

Suresh M. Sundaresan

Columbia Business School - Finance and Economics

Date Written: October 25, 2016

Abstract

In this paper we examine a novel two-stage mechanism for selling government securities, wherein the dealers underwrite in the first stage the sale of securities, which are auctioned in stage 2, via either a Discriminatory Auction (DA) or a Uniform Price Auction (UPA). Using proprietary data on auctions during 2006-2013, we find that a) the first stage underwriting auction generate significant information, including predicting the likelihood of devolvement, and bid shading, and b) the outcome of the underwriting auction may generate enough asymmetry amongst bidders which may make DA dominate UPA in certain counterfactual situations. We document that the unique two stage auction design provides a market driven mechanism to simultaneously insure against auction failures, and produce information about the quality of the underlying issue.

Suggested Citation

Gupta, Sudip and Sundaram, Rangarajan K. and Sundaresan, Suresh M., Underwriting Government Debt Auctions: Auction Choice and Information Production (October 25, 2016). Columbia Business School Research Paper No. 16-75; Gabelli School of Business, Fordham University Research Paper No. 2859846. Available at SSRN: https://ssrn.com/abstract=2859846 or http://dx.doi.org/10.2139/ssrn.2859846

Sudip Gupta (Contact Author)

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
United States

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0308 (Phone)
212-995-4233 (Fax)

Suresh M. Sundaresan

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
212-854-4423 (Phone)
212-316-9180 (Fax)

HOME PAGE: http://www0.gsb.columbia.edu/faculty/ssundaresan/

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