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

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Author Info
Bindseil, Ulrich
Nyborg, Kjell G
Strebulaev, Ilya

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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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4367.

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Date of creation: Apr 2004
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Handle: RePEc:cpr:ceprdp:4367

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Related research
Keywords: central bank; collateral; loser's nightmare; money markets; multiunit auctions; open market operations; repo auctions; reserve requirements;

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Nyborg, Kjell G. & Strebulaev, Ilya A., 2001. "Collateral and short squeezing of liquidity in fixed rate tenders," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 769-792, November. [Downloadable!] (restricted)
  2. Hoidal Bjonnes, Geir, 2001. "Winner's Curse in Discriminatory Price Auctions: Evidence from the Norwegian Treasury Bill Auctions," SIFR Research Report Series 3, Institute for Financial Research. [Downloadable!]
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  5. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February. [Downloadable!] (restricted)
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  6. Samita Sareen & Ali Hortacsu, 2004. "Order Flow and the Formation of Dealer Bids: An Analysis of Information and Strategic Behavior in the Government of Canada Securities Auctions," Working Papers 2004.145, Fondazione Eni Enrico Mattei. [Downloadable!]
  7. Kjell G. Nyborg & Kristian Rydqvist & Suresh M. Sundaresan, 2002. "Bidder Behavior in Multiunit Auctions: Evidence from Swedish Treasury Auctions," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 394-424, April. [Downloadable!] (restricted)
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  10. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Blackwell Publishing, vol. 44(3), pages 511-18, October. [Downloadable!] (restricted)
  11. Nyborg, Kjell G. & Sundaresan, Suresh, 1996. "Discriminatory versus uniform Treasury auctions: Evidence from when-issued transactions," Journal of Financial Economics, Elsevier, vol. 42(1), pages 63-104, September. [Downloadable!] (restricted)
  12. Kjell G. Nyborg, 2004. "Multiple Unit Auctions and Short Squeezes," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 17(2), pages 545-580. [Downloadable!] (restricted)
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  13. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
  14. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February. [Downloadable!] (restricted)
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  15. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Cornelia Holthausen & Jean-Charles Rochet, 2002. "Efficient pricing of large value interbank payment systems," Working Paper Series 184, European Central Bank. [Downloadable!]
    Other versions:
  2. Fecht, Falko & Nyborg, Kjell G. & Rocholl, Jörg, 2008. "The price of liquidity: bank characteristics and market conditions," Discussion Paper Series 1: Economic Studies 2008,30, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
  3. Cassola, N. & Ewerhart , C. & Valla, N., 2006. "Declining Valuations and Equilibrium Bidding Central Bank Refinancing Operations," Documents de Travail 151, Banque de France. [Downloadable!]
  4. Nuno Cassola & Christian Ewerhart & Claudio Morana, 2007. "Structural econometric approach to bidding in the main refinancing operations of the Eurosystem," Working Paper Series 793, European Central Bank. [Downloadable!]
  5. Ulrike Neyer & Jürgen Wiemers, 2004. "The Influence of a Heterogeneous Banking Sector on the Interbank Market Rate in the Euro Area," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(III), pages 395-428, September. [Downloadable!]
  6. Nuno Cassola & Christian Ewerhart & Claudio Morana, 2006. "Structural Econometric Approach to Bidding in the Main refinancing Operations of the Eurosystem," ICER Working Papers 26-2006, ICER - International Centre for Economic Research. [Downloadable!]
  7. tuomas välimäki, 2004. "Variable rate liquidity tenders," Macroeconomics 0405010, EconWPA. [Downloadable!]
  8. Christian Ewerhart, 2002. "A model of the Eurosystem's operational framework for monetary poicy implementation," Working Paper Series 197, European Central Bank. [Downloadable!]
  9. Carsten Detken & Alistair Dieppe & Jerome Henry & Frank Smets & Carmen Marin, 2002. "Model uncertainty and the equilibrium value of the real effective euro exchange rate," Working Paper Series 160, European Central Bank. [Downloadable!]
  10. Nicole Jonker, 2002. "Constructing quality-adjusted price indices: a comparison of hedonic and discrete choice models," Working Paper Series 172, European Central Bank. [Downloadable!]
    Other versions:
  11. Orly Sade & Charles Schnitzlein & Jaime Zender, 2006. "Competition and Cooperation in Divisible Good Auctions: An Experimental Examination," Artefactual Field Experiments 0076, The Field Experiments Website. [Downloadable!]
  12. Christian Ewerhart & Nuno Cassola & Steen Ejerskov & Natacha Valla, 2007. "Manipulation in Money Markets," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 113-148, March. [Downloadable!]
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  13. Linzert, Tobias & Schmidt, Sandra, 2007. "What Explains the Spread Between the Euro Overnight Rate and the ECB?s Policy Rate?," ZEW Discussion Papers 07-076, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
    Other versions:
  14. Rafael Romeu & Lawrence Ausubel, 2005. "Bidder Participation and Information in Currency Auctions," IMF Working Papers 05/157, International Monetary Fund. [Downloadable!]
  15. Giancarlo Corsetti & Luca Dedola, 2002. "From the ERM to the Euro: new evidence on economic and policy convergence among EU countries," Working Paper Series 176, European Central Bank. [Downloadable!]
    Other versions:
  16. Välimäki, Tuomas, 2002. "Variable rate liquidity tenders," Research Discussion Papers 24/2002, Bank of Finland. [Downloadable!]
  17. Ben Craig & Falko Fecht, 2006. "The Eurosystem money market auctions: a banking perspective," Working Paper 0506, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  18. Giuseppe Bruno & Ernesto Maurizio Ordine & Antonio Scalia, 2005. "BanksÂ’ participation in the Eurosystem auctions and money market integration," Temi di discussione (Economic working papers) 562, Bank of Italy, Economic Research Department. [Downloadable!]
  19. Christian Ewerhart & Nuno Cassola & Steen Ejerskov & Natacha Valla, 2003. "Optimal allotment policy in the eurosystem’s main refinancing operations?," Working Paper Series 295, European Central Bank. [Downloadable!]
  20. Christian Ewerhart & Nuno Cassola & Natacha Valla, 2006. "Declining valuations and equilibrium bidding in central bank refinancing operations," Working Paper Series 668, European Central Bank. [Downloadable!]
    Other versions:
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