IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/17095.html
   My bibliography  Save this paper

Price elasticity of demand and risk-bearing capacity in sovereign bond auctions

Author

Listed:
  • Albuquerque, Rui
  • Costa, José
  • Faias, Jose

Abstract

The paper uses data on bids submitted by primary dealer banks at auctions of sovereign debt to quantify the price elasticity of demand. The price elasticity of demand correlates strongly with the volatility of returns of the same bonds traded in the secondary market but only weakly with their bid-ask spread, a standard measure of market liquidity. The price elasticity of demand predicts the post-auction return of the same bonds in the secondary market at various horizons. The evidence suggests that the price elasticity of demand is associated with the magnitude of price pressure in the secondary market around auction days, and proxies for dealer risk-bearing capacity.

Suggested Citation

  • Albuquerque, Rui & Costa, José & Faias, Jose, 2022. "Price elasticity of demand and risk-bearing capacity in sovereign bond auctions," CEPR Discussion Papers 17095, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17095
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP17095
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Demand elasticity; Risk-bearing capacity; Price pressure; Market liquidity; Sovereign bond auctions; Supply shocks; Primary dealers; Covid-19;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:17095. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.