Discussion Papers, Department of Finance and Management Science, Norwegian School of Economics (NHH)
No 2005/13:
Bidding and Performance in Repo Auctions: Evidence from ECB Open Market Operations
Ulrich Bindseil ()
, Kjell G. Nyborg ()
and Ilya A. Strebulaev ()
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 fulfill 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; (follow links to similar papers)
JEL-Codes: D44; E43; E50; G12; G21; (follow links to similar papers)
50 pages, December 22, 2005
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