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

Rui Albuquerque, Costa, José and Jose Faias

No 17095, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The paper uses bids submitted by primary dealer banks at auctions of sovereign bonds 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. It predicts same-bond post-auction returns in the secondary market, even after controlling for pre-auction volatility. 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 primary dealer risk-bearing capacity.

Keywords: Demand elasticity; European Central Bank (search for similar items in EconPapers)
JEL-codes: G12 G20 G24 (search for similar items in EconPapers)
Date: 2022-03
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Related works:
Journal Article: Price elasticity of demand and risk-bearing capacity in sovereign bond auctions (2024)
Working Paper: Price elasticity of demand and risk-bearing capacity in sovereign bond auctions (2023)
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