Bidding and Performance in Repo Auctions - Evidence from ECB Open Market Operations
Kjell G. Nyborg
University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); Swiss Finance Institute
European Central Bank (ECB)
Ilya A. Strebulaev
Stanford University - Graduate School of Business; National Bureau of Economic Research
AFA 2003 Washington, DC Meetings; EFA 2002 Berlin Meetings Presented Paper; ECB Working Paper No. 157
We study bidder behavior and performance in 53 main refinancing operations ("repo auctions") of the European Central Bank (ECB). The data set starts with the first auction after the ECB changed from fixed rate tenders to variable rate tenders. We find that private information and the winner's curse are not important in these auctions. The minimum bid rate and the level of secondary market rates play a crucial role in bidder behavior and auction performance. We also document that large bidders do better than small bidders, apparently because they use "smarter" strategies which involve using more bids and having more kurtosis in their individual bid distribution. The penultimate auction in every reserve maintenance period has less underpricing than the other auctions within the maintenance period. Finally, from the two cases of underbidding covered by the sample period, it appears this was driven by particularly large cutbacks by large, rather than small, bidders.
Number of Pages in PDF File: 57
Keywords: Repo auctions, multiunit auctions, discriminatory auctions, reserve requirements, money markets, central bank, interest rates, collateral, open market operations.
JEL Classification: G21, G12, D44, E43, E50working papers series
Date posted: May 29, 2003
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