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

46 Pages Posted: 26 May 2004

See all articles by Ulrich Bindseil

Ulrich Bindseil

European Central Bank (ECB)

Kjell G. Nyborg

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

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: April 2004

Abstract

Repo auctions are multiunit auctions regularly used by central banks to inject liquidity into the banking sector. Banks have a fundamental need to participate, because they have to satisfy reserve requirements. Superficially, repo auctions resemble treasury auctions; the format and rules are similar, and there is an active secondary market for the underlying asset. Using a bidder level dataset of the European Central Bank's main repo auctions, however, we find evidence that the economic issues in repo auctions may be very different. Unlike what has been documented in the treasury auctions literature, we find no evidence that private information and the winner's curse are important issues. Instead, our findings suggest that bidders are more concerned with the loser's nightmare, collateral, and future interest rate reductions by the ECB. Small and large bidders use different strategies, with large bidders performing better.

Keywords: Multiunit auctions, reserve requirements, loser's nightmare, money markets, collateral, repo auctions, central bank, open market operations

JEL Classification: D44, E43, E50, G12, G21

Suggested Citation

Bindseil, Ulrich and Nyborg, Kjell G. and Strebulaev, Ilya A., Bidding and Performance in Repo Auctions - Evidence from ECB Open Market Operations (April 2004). CEPR Discussion Paper No. 4367. Available at SSRN: https://ssrn.com/abstract=551527

Ulrich Bindseil

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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

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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