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Auctioning Sovereign Bonds: A Global Cross-Section Investigation of the Price Mechanism

32 Pages Posted: 21 Feb 2007  

Menachem Brenner

New York University (NYU) - Department of Finance

Dan Galai

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Orly Sade

Hebrew University of Jerusalem - Department of Finance

Date Written: August 2007

Abstract

Many financial assets, especially government bonds, are issued by an auction. An important feature of the design is the auction pricing mechanism: Uniform vs. Discriminatory. Theoretical papers do not provide a definite answer regarding the dominance of one type of auction over the other. We investigate the revealed preferences of the issuers by surveying the sovereign issuers that conduct auctions. We find that the majority of the issuers/countries in our sample use a discriminatory auction mechanism for issuing government debt securities. We use a multinomial logit procedure and discriminatory analysis to investigate the mechanism choice. It was interesting to find that market oriented economies and those that practice Common law tend to use a uniform method while economies who are less market oriented and practice Civil law tend to use discriminatory price auctions.

Keywords: Uniform auction, discriminatory auction, treasury bonds, Tbills

JEL Classification: G1, F3

Suggested Citation

Brenner, Menachem and Galai, Dan and Sade, Orly, Auctioning Sovereign Bonds: A Global Cross-Section Investigation of the Price Mechanism (August 2007). EFA 2006 Zurich Meetings Paper. Available at SSRN: https://ssrn.com/abstract=879484 or http://dx.doi.org/10.2139/ssrn.879484

Menachem Brenner

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0323 (Phone)
212-995-4233 (Fax)

Dan Galai

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel
972 2 5883235 (Phone)
972 2 5881341 (Fax)

Orly Sade (Contact Author)

Hebrew University of Jerusalem - Department of Finance ( email )

Mount Scopus
Jerusalem, 91905
Israel
972 2 588 3227 (Phone)

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