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https://pruebas.repositorio.redinvestigadores.org//handle/Riec/3

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Browsing Documentos de Trabajo by Author "Bonaldi, Pietro"

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    Open Access
    An Auction-Based Test of Private Information in an Interdealer FX Market
    (Banco de la República de Colombia, 2018-09-26) Bonaldi, Pietro; Villamizar-Villegas, Mauricio
    There are several financial markets where dealers trade a large share of total volume, while also having access to periodic auctions of the same asset conducted by a third party. For such a market, we derive a test of private information about the value of the asset that combines data on both bidding behavior and market trades. Our approach is to test for private versus common values, as defined in auction theory. We use changes in trading prices of extreme bidders before and after the auction to test the null hypothesis of private values (no private information) against the alternative of common values (private information). Additionally, we use a regression discontinuity design where we compare the behavior of dealers bidding right below and right above the auction’s cutoff price to control for inventory effects, understood here as decreasing marginal valuations as functions of inventory. Our case study are foreign exchange auctions conducted by the Central Bank of Colombia during the period 2008-2014, and the corresponding interdealer market for the Colombian peso against the US dollar. Overall, the data does not reject the null hypothesis of private values. Specifically, information about other bidders’ valuations has no significant effect on trading prices, not even shortly after the auction takes place.
    Documentos de Trabajo RIEC - No. 1, 2018-09-26