Stock auction bidding behavior and information asymmetries: An empirical analysis using the discriminatory auction model framework

This paper empirically analyzes bidding behavior and information asymmetries of stock auctions using a discriminatory auction model framework. Analyzing stock auctions using auction theory is important because it provides a logical framework for explaining observable behaviors and a solid foundation for empirical testing. Because of limited availability of stock auction data, existing empirical research based on auction theory focus mainly on treasury auctions. Away from the treasury markets, however, there is a significant paucity of literature on this subject. In this study, we make use of a detailed stock auction data set from the Taiwan Stock Exchange to empirically examine the behaviors of the Taiwan stock auction market within the framework of the auction theory. Our results show that the level of competition, the dispersion of opinion among bidders, and the bidder's risk aversion are significant in determining auction prices. Results also show that if the offering prices are set equal to the average offering prices, the first-day post-initial public offering abnormal return will be equal to zero. Additionally, we find institutional bidders possess superior bidding skills compared to small bidders and that underwriter's characteristics influence the bidding results. (C) 2003 Elsevier Science B.V. All rights reserved.