Do Uniform Price Auctions Trade-off Higher Risk for Higher Return?
Jaclyn Beierlein (The College of New Jersey)
Hideaki Kiyoshi Kato (Tue University of Tsukuba)

Results of the recent US Treasury experiment comparing uniform and discriminatory price auctions suggest that uniform price auctions achieve lower award concentration and higher average revenues but experience higher variance of revenues from auction to auction relative to discriminatory price auctions. In order words, uniform pricing offers higher risk for higher return. This apparent trade-off may deter some sellers considering the switch from discriminatory to uniform pricing; thus, it is important to investigate whether these results can be generalized. The Treasury’s results are driven by the tendency for bidders in the uniform auctions to submit multiple bids at a wide range of prices, essentially steep bid curves, instead of the flat bids submitted in the discriminatory auctions. However, theory and data from discriminatory auctions in Sweden and Portugal suggest that bidders in discriminatory auctions will submit steeper bids when there is more potential for winner’s curse. It is possible that bidders in the US auctions, which are preceded by a when-issued market, are relatively unconcerned with the winner’s curse. We examine the auction formats in an environment much more likely to generate the winner’s curse: the initial public offering market. We compare discriminatory price auctions in Japan and uniform price auctions in Israel on the basis of revenue and slope of the demand curves and test a number of divisible good auction theory implications. In contrast with the Treasury’s results, we find that revenues are likely to be insignificantly different in the discriminatory and uniform price auctions and that bid curves may be equally steep under both formats in markets with information asymmetry. The winner’s curse increases underpricing and steepens demand curves in Japan’s discriminatory price auctions but not in Israel’s uniform price auctions.
*We wish to thank Uri Loewenstein, Jaime Zender, Michael Gordy, Jim Wang, Orly Sade and Keith Jakob for helpful comments on this or preceding work. We also thank an anonymous referee for many suggestions and questions that helped us improve the paper. This work has been financially supported by the Marriner S. Eccles Fellowship, the University of Utah Graduate Research Fellowship, and the Japanese Ministry of Scienece and Education.

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Future Long-Horizon Performance Measurement Conditional on Past Survival
Philip Gray (UQ Business School)
Mark Whittaker (The University of Queensland)

This paper examines the measurement of long-horizon abnormal performance when stock selection is conditional on an extended period of past survival. Filtering on Survival results in a sample driven towards more established, frequently traded stocks and this has implications for the choice of benchmark used in performance measurement (especially in the presence of the well-documented size effect). A simulation study is conducted to document the properties of commonly employed performance measures conditional on past survival. The results suggest that the popular index benchmarks used in long-horizon event studies are severely biased and yield test statistics that are badly misspecified. In contrast, a matched-stock benchmark based on size and industry performs consistently well. Also, an eligible-stock index designed to mitigate the influence of the size effect proves effective.
*The authors are grateful for the comments and suggestions of Tim Brailsford, John Lyon, Matthew Pinnuck, Garry Twite, and Especially Bruce Grundy (Associate Editor), as well as seminar participants at the University of Melbourne and Melbourne Business School.

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Dynamic Optimality of Yield Curve Strategies
Takao Kobayashi (Graduate School of Economics, University of Tokyo)
Akihiko Takahashi (Graduate School of Economics, University of Tokyo)
Norio Tokioka (Faculty of Economics, Seiki University)

This paper formulates and analyzes a dynamics optimization problem of bond portfolios within Markovian Heath-Jarrow-Morton term structure models. In particular, we investigate optimal yield curve strategies analytically and numerically, and provide theoretical justification for a typical strategy which is recommended in practice for an expected change in the shape of the yield curve. In the numerical analysis, we utilize a new technique based on the asymptotic expansion approach in order to increase efficiency in computation.
*Earlier versions of this paper were presented at the annual meeting of the Nippon Finance Association, the semiannual meeting of the Japanese Economic Association, the Yokohama National University and Nanzan University joint finance workshop, and a seminar held at Seikei University. We thank Nai-fu Chen (the editor), an anonymous referee, Toshiki Honda, Yoshio Kanazaki, and others who were present at these meetings and seminars for their helpful comments. Needless to say, the remaining errors are our own.

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Measuring Productive Efficiency of Stock Exchanges using Price Adjustment Coefficients
Vijaya B. Marisetty (Monash University, Australia)

A stock exchange’s efficiency can be measured by its liquidity and price discovery mechanism. An exchange that provides price discovery will have high liquidity. By measuring the speed of stock price adjustment to its intrinsic value with the arrival of new information, we can understand the price discovery process and productive efficiency of a stock exchange. India has 23 stock exchanges, 20 of which have almost become dysfunctional due to negligible trading during the last five years. Measuring productive efficiency of the current active stock exchanges will help to understand the future direction of the Indian stock market. Using the corrected Damodaran (1993) model and a new model proposed in this paper, I found that information adjustment in the Indian market is very slow. Contrary to the developed markets, in the Indian stock market, stock prices overreact before adjusting to their intrinsic values. I also found that market-wide information adjusts faster than firm-specific information.
*I would like to thank Vedpuriswar, Prashanth Benereji, and Priyan Ranjan of ICFAI University, India, for their constant support and help throughout the project, Kais Hamza, Monash University, for clarifications on some derivations used in the paper, and National Stock Exchange of India Limited, India for a generous aresearch grant. Special thanks are due to the editor (Bruce Grundy) for his valuable comments in reshaping this paper.

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