Market Sentiments, Winner’s Curse and Bidding Outcome in Land Auctions

  • Maurice K. S. Tse
  • Frederik I. H. Pretorius
  • K. W. Chau


This paper empirically tests auction theory by examining how the stock market evaluates the outcome of open-bid English auctions of rights to develop residential real estate projects in Hong Kong. To do so, we deconstruct the complexity surrounding actual auction events, and empirically isolate the influence of conflicting auction theory predictions using data from expert opinion around auction events, actual auction event and outcome data, and stock market data. The empirical findings include (1) with increasing uncertainty bidders reduce bids, thus confirming predictions following the winner’s curse thesis; (2) joint bidding does not lead to increased bids based on pooled (“better”) information, but instead leads to reduced competition; while increased competition leads to increased prices at auction, as expected; (3) the market interprets auction outcomes as information events which function to signal developers’ expectations about future market prospects; but if the winning bid is considered too high, this interpretation is revised to that of the winner’s curse; (4) with joint bidding and winning, the market’s response to joint winners is better explained by concern for winner’s curse (despite supposed better informed bids) than the acquisition of a below cost development project following reduced competition at auction; and (5) the market interprets increased competition at auction as indicator of the future direction of property price movements in the secondary market—the more intense the competition, the more positive the future prospect of the property market are seen to be.


Auction Bidding outcome Market sentiments Winner’s curse 



We gratefully acknowledge the financial support provided by the Research Grant Council of the Hong Kong Special Administrative Region (RGC Reference Number: HKU 7112/05E) and a grant from the University Grants Committee of the Hong Kong Special Administrative Region, China (Project No. AoE/H-05/99).


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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  • Maurice K. S. Tse
    • 1
  • Frederik I. H. Pretorius
    • 2
  • K. W. Chau
    • 2
  1. 1.School of Economics and FinanceThe University of Hong KongHong KongHong Kong
  2. 2.Department of Real Estate and ConstructionThe University of Hong KongHong KongHong Kong

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