The effect of jump bids: An empirical study of jump bids on Stockholm's residential property market

Sammanfattning: Jump bid is the phenomena of submitting bids significantly larger than other bids in an auction. In this paper the effect of submitting jump bids in auctions on Stockholm's residential property market is analyzed. Using a data set of bid series from the apartments sold in Stockholm municipality between 2013 and 2016, we divide the size of the increase in bid in relation to sold price. We then create three different mathematical definitions of jump bids that describe different aspects of the rationale behind jump bids. The first two definitions define jump bid from a dummy variable approach and the third definition is the same used by Hungria-Gunnelin [7]. From an econometric approach, the three definitions are separately analyzed in regression models where control variables are object specific variables, for instance size of the apartment, number of rooms and area dummy variables. Our findings are that all three definitions suggest statistical significant results that a submission of a jump bid in a bid series increases the sold price. Furthermore, the results are also considered as economically significant. The conclusion is that if the utility function for agents in the auction is only to win the auction for as low price as possible, the agent should not submit jump bids.