The first empirical analysis of Zions Bancorporation’s 2006 and 2007
auctions of Employee Stock Option Appreciation Rights Securities (ESOARS), this
study examined (1) the impact of auction rules on bidding strategies and
allocations, (2) the efficiency of the auction clearing prices, and (3) the
“value gap” between ESOARS auction clearing prices and various
model-based estimates. It found that the design features of the auctions (e.g.,
ending rules) significantly affected bidding strategies but not final
allocations, which remained highly concentrated. It also found that the clearing
prices (1) displayed high price elasticities of demand, suggesting efficient
price discovery, and (2) were low relative to some, but not all, model-based
estimates. These findings suggest design improvements that might benefit
auctions of other illiquid derivatives (e.g., banks’ “troubled
assets”) currently being considered by the U.S. government.