Pre-auction inventory and bidding behavior: Evidence from Canadian Treasury auctions

Bidders enter the Government of Canada securities auctions with short, neutral, or long pre-auction inventory. We find that bidding strategies and auction performance vary with pre-auction ownership structure. Short and long bidders bid higher average prices, demand larger quantities, and submit fewer bids than do bidders with neutral pre-auction inventory. These bidding strategies imply less underpricing in auctions with aggregate pre-auction inventory tilted in one way or the other. We analyze whether a concern for post-auction short squeeze influences observed bidding strategies and auction performance.