Decision Sciences
4 years ago

Large bidders dominate repo auctions with smarter strategies, impacting market performance.

SSRN Electronic Journal
Bidding and Performance in Repo Auctions - Evidence from ECB Open Market Operations
Kjell G. Nyborg, Ulrich Bindseil, Ilya A. Strebulaev

Paper Summary

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The article examines bidder behavior and performance in ECB repo auctions. Private information and the winner's curse are not significant factors. The minimum bid rate and secondary market rates influence bidder behavior and auction outcomes. Larger bidders outperform smaller bidders by using more bids and smarter strategies. The penultimate auction in each reserve maintenance period shows less underpricing. Underbidding in the sample period was driven by large bidders making significant cutbacks.