Bidding and Performance in Repo Auctions: Evidence from ECB Open Market Operations
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. However, using a bidder level dataset of the European Central Bankâ€™s main repo auctions, we find evidence that the economic issues in repo auctions may be very diï¬€erent. Unlike what has been documented in the treasury auctions literature, we find no evidence that private information and the winnerâ€™s curse are important issues. Instead our findings suggest that bidders are more concerned with the loserâ€™s nightmare, collateral, and future interest rate reductions by the ECB. Small and large bidders use diï¬€erent strategies, with large bidders performing better.
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