Hedging Winner's Curse with Multiple Bids: Evidence from the Portuguese Treasury Bill Auction

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Abstract
Auctions of government securities typically permit bidders to enter multiple price-quantity bids. Despite the widespread adoption of this institutional feature and its use by bidders, the motivations behind its use and its effects on auction outcomes are not well understood theoretically and have been little explored empirically. Using bidding data from treasury bill auctions in Portugal, this paper examines how bidders use multiple bids to hedge against winner's curse. The data show that, ceteris paribus, a bidder submits a greater number of bids and disperses prices on these bids more widely when there is a greater potential for winner's curse. In particular, both these measures of bid- spreading increase with the volatility of market interest rates and the expected number of participating well-informed bidders.
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