EUROPEAN
CENTRAL
BANK
WO R K I N G PA P E R S E R I E S
WORKING PAPER NO. 157
BIDDING AND PERFORMANCE
IN REPO AUCTIONS:
EVIDENCE FROM ECB OPEN
MARKET OPERATIONS
BY KJELL G. NYBORG,
ULRICH BINDSEIL
AND ILYA A. STREBULAEV
July 2002
EUROPEAN
CENTRAL
BANK
WO R K I N G PA P E R S E R I E S
WORKING PAPER NO. 157
BIDDING AND PERFORMANCE
IN REPO AUCTIONS:
EVIDENCE FROM ECB OPEN
MARKET OPERATIONS
BY KJELL G. NYBORG,
ULRICH BINDSEIL
AND ILYA A. STREBULAEV*
July 2002
* We wish to thank the ECB’s Front Office Division for providing secondary market data and Jean-Louis Schirmann for helpful
discussions on the microstructure of the euro area money market. We also wish to thank seminar participants at the ECB for valuable
comments. Nyborg would like to thank the ECB’s Directorate General Research for its invitation to a research stay in the autumn of
2001, when the bulk of this research was carried out. Strebulaev would like to thank the ECB for the opportunity to visit it for the
purpose of this research project. Nyborg: London Business School, Regent’s Park, London NW1 4SA, UK, [email protected]; CEPR.
Bindseil: European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany, [email protected]. Strebulaev: London
Business School, [email protected]
© European Central Bank, 2002
Address
Postal address
Telephone
Internet
Fax
Telex
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
Postfach 16 03 19
D-60066 Frankfurt am Main
Germany
+49 69 1344 0
http://www.ecb.int
+49 69 1344 6000
411 144 ecb d
All rights reserved.
Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged.
The views expressed in this paper are those of the authors and do not necessarily reflect those of the European Central Bank.
ISSN 1561-0810
Contents
Abstract
4
Non-technical summary
5
1
Introduction
6
2
Institutional Framework
2.1 Operational Framework of the Eurosystem
2.2 Open Market Operations: The Auctions
2.3 The Liquidity Management (allotment policy) of the European Central
Bank
8
8
9
10
3
Overview of the Data and the Markets
3.1 The Auctions
3.2 The Secondary Market
11
11
13
4
Theoretical Considerations
4.1 Winner’s Curse and Collateral
4.2 Reserve Requirements: Shorts and Longs
4.3 Collateral, Auction Cycle and Minimum Bid Rate
15
15
15
16
5
Cross Sectional Analysis
5.1 Descriptive Statistics
5.2 Regression Analysis
17
17
19
6
Intertemporal Behavior and Performance
6.1 Behavior
6.2 Performance Across and Within Maintenance Periods
23
23
24
7
Size
26
8
Underbidding
28
9
Conclusion
30
10
Appendix: Conditional Volatility Estimation
31
11
References
32
Tables & Figures
34
European Central Bank Working Paper Series
54
ECB • Working Paper No 157 • July 2002
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