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Bidding and Information: Evidence from Gilt-Edged Auctions

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  • Breedon, Francis
  • Ganley, Joe

Abstract

Many studies have shown that government debt auctions underprice debt compared with the secondary market. This paper corroborates this for certain forms of gilt auction by comparing the price received at auction with an almost identical parent stock in the secondary market. Although the sample is small, the parent/auction stock price comparison gives a cleaner measure than used in other studies. The paper also compares non-fungible auctions (where the auction stock differs slightly from the parent at auction and merges subsequently) with fully-fungible ones (where they are identical throughout). Significant underpricing only occurs in non-fungible auctions.

Suggested Citation

  • Breedon, Francis & Ganley, Joe, 2000. "Bidding and Information: Evidence from Gilt-Edged Auctions," Economic Journal, Royal Economic Society, vol. 110(466), pages 963-984, October.
    • Handle: RePEc:ecj:econjl:v:110:y:2000:i:466:p:963-84
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    References listed on IDEAS

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    1. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    2. Umlauf, Steven R., 1993. "An empirical study of the Mexican Treasury bill auction," Journal of Financial Economics, Elsevier, vol. 33(3), pages 313-340, June.
    3. Andrew G Haldane & Mahmood Pradhan, 1992. "Real interest parity, dynamic convergence and the European Monetary System," Bank of England working papers 1, Bank of England.
    4. Joanna Paisley, 1994. "A Model of Building Society Interest Rate Setting," Bank of England working papers 22, Bank of England.
    5. Spindt, Paul A. & Stolz, Richard W., 1992. "Are US treasury bills underpriced in the primary market?," Journal of Banking & Finance, Elsevier, vol. 16(5), pages 891-908, September.
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    Cited by:

    1. Sara Castellanos, 2001. "Mexican treasury securities primary auctions," Theory workshop papers 357966000000000025, UCLA Department of Economics.
    2. Steeley, James M. & Matyushkin, Alexander, 2015. "The effects of quantitative easing on the volatility of the gilt-edged market," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 113-128.
    3. Michael A.S. Joyce & Matthew Tong, 2012. "QE and the Gilt Market: a Disaggregated Analysis," Economic Journal, Royal Economic Society, vol. 122(564), pages 348-384, November.
    4. Steeley, James M., 2015. "The side effects of quantitative easing: Evidence from the UK bond market," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 303-336.
    5. Fuhrer, Lucas Marc & Giese, Julia, 2021. "Gilt auctions and secondary market dynamics," Finance Research Letters, Elsevier, vol. 38(C).
    6. Cafiso, Gianluca, 2019. "Sovereign bond markets when auctions take place: Evidence from Italy," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 406-430.
    7. Sara Castellanos, 2001. "A New Empirical Study of the Mexican Treasury Securities Primary Auctions: Is there more underpricing?," Levine's Working Paper Archive 625018000000000206, David K. Levine.
    8. Breuer, Wolfgang, 1999. "The relevance of primary dealers for public bond issues," CFS Working Paper Series 1999/11, Center for Financial Studies (CFS).

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