Bidding and Performance in Repo Auctions - Evidence from ECB Open Market Operations

57 Pages Posted: 29 May 2003

See all articles by Kjell G. Nyborg

Kjell G. Nyborg

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Ulrich Bindseil

European Central Bank (ECB)

Ilya A. Strebulaev

Stanford University - Graduate School of Business; National Bureau of Economic Research

Multiple version iconThere are 3 versions of this paper

Date Written: May 2002

Abstract

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.

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, E50

Suggested Citation

Nyborg, Kjell G. and Bindseil, Ulrich and Strebulaev, Ilya A., Bidding and Performance in Repo Auctions - Evidence from ECB Open Market Operations (May 2002). AFA 2003 Washington, DC Meetings; EFA 2002 Berlin Meetings Presented Paper; ECB Working Paper No. 157. Available at SSRN: https://ssrn.com/abstract=302760

Kjell G. Nyborg (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Z├╝rich, 8032
Switzerland
+41 (0)44 634 2980 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Ulrich Bindseil

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ilya A. Strebulaev

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://faculty-gsb.stanford.edu/strebulaev/

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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