Competition on MARS? A study of broker-dealer competition in the U.S. municipal auction rate securities market
The relationship between competitive bidding in auctions and its impact on price and interest rates has long been of importance for a wide range of market practitioners. Although research has shown that increased competition among broker-dealers and bidders results in lower municipal interest rates, the amount of literature addressing auction rate securities is almost non-existent. The U.S. municipal auction rate securities market (MARS) offers an opportunity to expand the growing but limited empirical analysis of auctions. In particular, researchers can study the impact of market power and competitive search on interest rates using this uniform pricing, multi-unit, frequently repeated dutch auction process. Furthermore, in general, previous cross-sectional models measuring relationships in standard municipal markets are quite static in that they mostly assume some form of dynamic parametric homogeneity. Using a novel empirical approach, i.e., one that doesn't assume the time-constancy of cross-sectional parameters, our research shows that greater underwriter competition and search for potential investors in the form of multiple broker-dealers does indeed lead to lower municipal auction rates. This outcome does not hold for the entire sample life of the security--a result that was captured clearly using our methodology.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- Brannman, Lance & Klein, J Douglass & Weiss, Leonard W, 1987. "The Price Effects of Increased Competition in Auction Markets," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 24-32, February.
- Back, Kerry & Zender, Jaime F., 2001. "Auctions of divisible goods with endogenous supply," Economics Letters, Elsevier, vol. 73(1), pages 29-34, October.
- Bower, John & Bunn, Derek, 2001. "Experimental analysis of the efficiency of uniform-price versus discriminatory auctions in the England and Wales electricity market," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 561-592, March.
- Klemperer, Paul, 2000.
"What Really Matters in Auction Design,"
CEPR Discussion Papers
2581, C.E.P.R. Discussion Papers.
- McAleer, Michael, 1994. " Sherlock Holmes and the Search for Truth: A Diagnostic Tale," Journal of Economic Surveys, Wiley Blackwell, vol. 8(4), pages 317-70, December.
- Edwards Jeffrey A & Sams Alfred & Yang Benhua, 2006. "A Refinement in the Specification of Empirical Macroeconomic Models as an Extension to the EBA Procedure," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(2), pages 1-26, October.
- Hendershott, Patric H & Kidwell, David S, 1978. "The Impact of Relative Security Supplies: A Test with Data from a Regional Tax-Exempt Bond Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(3), pages 337-47, August.
- Edwards, Jeffrey A. & Kasibhatla, Krishna, 2009. "Dynamic heterogeneity in cross-country growth relationships," Economic Modelling, Elsevier, vol. 26(2), pages 445-455, March.
- Kessel, Reuben, 1971. "A Study of the Effects of Competition in the Tax-exempt Bond Market," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 706-38, July-Aug..
- repec:oup:restud:v:44:y:1977:i:3:p:511-18 is not listed on IDEAS
- Benson, Earl D, 1979. "The Search for Information by Underwriters and Its Impact on Municipal Interest Cost," Journal of Finance, American Finance Association, vol. 34(4), pages 871-85, September.
- Robert Wilson, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 511-518.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:36444. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.