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

59 Pages Posted: 28 Jul 2005

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: July 2005

Abstract

Repo auctions are used to inject central bank funds against collateral into the banking sector. The ECB uses standard discriminatory auctions and hundreds of banks participate. The amount auctioned over the monthly reserve maintenance period is in principle exactly what banks collectively need to fulfil reserve requirements. We study bidder-level data and find: (i) Bidder behavior is different from what is documented for treasury auctions. Private information and the winner's curse seem to be relatively unimportant. (ii) Underpricing is positively related to the difference between the interbank rate and the auction minimum bid rate, with the latter appearing to be a binding constraint. (iii) Bidders are more aggressive when the imbalance of awards in the previous auction is larger. (iv) Large bidders do better than small bidders. Some of our findings suggests that bidders are concerned with the loser's nightmare and have limited amounts of the cheapest eligible collateral.

Keywords: Repo auctions, Multiunit auctions, Reserve requirements, Loser's nightmare, Money markets, Central bank, 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 (July 2005). FEEM Working Paper No. 92.05. Available at SSRN: https://ssrn.com/abstract=762184 or http://dx.doi.org/10.2139/ssrn.762184

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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