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

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  • Bindseil, Ulrich
  • Nyborg, Kjell G
  • Strebulaev, Ilya

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

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References

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  1. 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.
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  16. Breitung, Jorg & Nautz, Dieter, 2001. "The empirical performance of the ECB's repo auctions: evidence from aggregated and individual bidding data," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 839-856, November.
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