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Overpricing in Spanish Treasury Auctions

Author

Listed:
  • Francisco Alvarez

    (Department of Economic Analysis and ICAE, Universidad Complutense)

  • Cristina Mazon

    (Department of Economic Analysis and ICAE, Universidad Complutense)

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.

Suggested Citation

  • Francisco Alvarez & Cristina Mazon, 2019. "Overpricing in Spanish Treasury Auctions," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 199-220, May.
    • Handle: RePEc:cuf:journl:y:2019:v:20:i:1:alvarezmazon
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    References listed on IDEAS

    as
    1. Francisco Alvarez & Cristina Mazón, 2016. "Price volatility in the secondary market and bidders’ heterogeneous behavior in Spanish Treasury auctions," Empirical Economics, Springer, vol. 50(4), pages 1435-1466, June.
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    More about this item

    Keywords

    Multi-unit auctions; Treasury auctions; Spanish format; Overpricing; Overbidding;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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