Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Nov, 2012, Volume 80, Issue 6

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

https://doi.org/10.3982/ECTA8365
p. 2511-2542

Ali Hortaçsu, Jakub Kastl

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) , that is, the distribution of competing bids in the auction, and (ii) , 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.


Log In To View Full Content

Supplemental Material

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

Table 7: Joint Hypothesis Studentized Test Results

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

This zip file contains the replication files for the manuscript.