Bidders’ Behaviour and Theory of Share Auctions with Applications to the Colombian Primary Bond Market

Abstract

Although most governments sell their bonds through a share auction, little is known about behaviour of bidders in these auctions. This thesis analyzes the literature on government securities auctions, focusing primarily on structural empirical estimation. Additionally, it examines bidders behaviour in Colombian government bond auctions during 2007, including the additional sale done after the auction. The thesis summarizes the different structural methodologies that have been developed to determine what the best auction for a particular case is. It discusses the advantages and disadvantages of each methodology and explores assumptions and robustness when confronted with data. To make these comparisons more straightforward, a unified notation is introduced and several methods are applied to the same auctions, uniform price auctions conducted by the government of Colombia.