Overpricing in Spanish Treasury Auctions

Francisco Alvarez Gonzalez () and Cristina Mazon ()
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Cristina Mazon: Department of Economic Analysis and ICAE, Universidad Complutense

Annals of Economics and Finance, 2019, vol. 20, issue 1, 199-220

Abstract: We find evidence of overpricing in Spanish Treasury auctions: the average price paid by bidders at the auction is higher than the secondary market price of the bond at the auction time. Overpricing is related to overbidding, a problem of the primary dealer structure used in the Euro area to guarantee the liquidity of bonds: on average, bidders bid 52% of quantity demanded at prices higher than the lowest ask price on the secondary market at the time of the auction. Using a panel regression analysis, we find that overpricing increases with overbidding and decreases with secondary market volatility; is related to secondary market price distortions on the auction day, and increases with the bond duration. Finally, the change in regulation concerning the way in which market makers were evaluated, decreases overpricing. We use individual bidding data for 29 auctions held between 2005 and 2007, identifying bidders throughout the auctions.

Keywords: Multi-unit auctions; Treasury auctions; Spanish format; Overpricing; Overbidding (search for similar items in EconPapers)
JEL-codes: D44 G28 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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