Liquidity Shocks, Market Maker Turnover, and Bidding Behavior in Treasury Auctions

Publikation: Working paperForskning

Standard

Liquidity Shocks, Market Maker Turnover, and Bidding Behavior in Treasury Auctions. / Gonzalez-Eiras, Martin; Rudiger, Jesper.

2017.

Publikation: Working paperForskning

Harvard

Gonzalez-Eiras, M & Rudiger, J 2017 'Liquidity Shocks, Market Maker Turnover, and Bidding Behavior in Treasury Auctions'.

APA

Gonzalez-Eiras, M., & Rudiger, J. (2017). Liquidity Shocks, Market Maker Turnover, and Bidding Behavior in Treasury Auctions. University of Copenhagen. Institute of Economics. Discussion Papers (Online), Nr. 17-13

Vancouver

Gonzalez-Eiras M, Rudiger J. Liquidity Shocks, Market Maker Turnover, and Bidding Behavior in Treasury Auctions. 2017.

Author

Gonzalez-Eiras, Martin ; Rudiger, Jesper. / Liquidity Shocks, Market Maker Turnover, and Bidding Behavior in Treasury Auctions. 2017. (University of Copenhagen. Institute of Economics. Discussion Papers (Online); Nr. 17-13).

Bibtex

@techreport{8c58d1bd89624962a9e51312faa84d68,
title = "Liquidity Shocks, Market Maker Turnover, and Bidding Behavior in Treasury Auctions",
abstract = "We use bid data from Argentinian Treasury bill auctions from 1996 to 2000 to study how banks' balance sheet and past performance affect bidding behavior. Exploiting variation in regulations for market making activity we show that when banks fear losing their market maker status, they bid more aggressively. They also bid more aggressively for existing securities that are reissued when the regulation tightens the requirements for secondary market participation. Consistent with regulations which imply that auctioned securities are not a prime source of liquidity, we find that banks which face liquidity needs bid less aggressively for them. A novel implication of our results is that in institutional settings that feature turnover of market makers, bidding behavior should be modeled in a dynamic setting. We introduce a dynamic model and show that static estimates over-predict true valuations when market makers may lose their status.",
keywords = "Faculty of Social Sciences, Treasury Auctions, Multi-unit Auctions, Structural Estimation, Bidding Behavior, Balance-sheet, Data, Market Making",
author = "Martin Gonzalez-Eiras and Jesper Rudiger",
year = "2017",
language = "English",
series = "University of Copenhagen. Institute of Economics. Discussion Papers (Online)",
number = "17-13",
type = "WorkingPaper",

}

RIS

TY - UNPB

T1 - Liquidity Shocks, Market Maker Turnover, and Bidding Behavior in Treasury Auctions

AU - Gonzalez-Eiras, Martin

AU - Rudiger, Jesper

PY - 2017

Y1 - 2017

N2 - We use bid data from Argentinian Treasury bill auctions from 1996 to 2000 to study how banks' balance sheet and past performance affect bidding behavior. Exploiting variation in regulations for market making activity we show that when banks fear losing their market maker status, they bid more aggressively. They also bid more aggressively for existing securities that are reissued when the regulation tightens the requirements for secondary market participation. Consistent with regulations which imply that auctioned securities are not a prime source of liquidity, we find that banks which face liquidity needs bid less aggressively for them. A novel implication of our results is that in institutional settings that feature turnover of market makers, bidding behavior should be modeled in a dynamic setting. We introduce a dynamic model and show that static estimates over-predict true valuations when market makers may lose their status.

AB - We use bid data from Argentinian Treasury bill auctions from 1996 to 2000 to study how banks' balance sheet and past performance affect bidding behavior. Exploiting variation in regulations for market making activity we show that when banks fear losing their market maker status, they bid more aggressively. They also bid more aggressively for existing securities that are reissued when the regulation tightens the requirements for secondary market participation. Consistent with regulations which imply that auctioned securities are not a prime source of liquidity, we find that banks which face liquidity needs bid less aggressively for them. A novel implication of our results is that in institutional settings that feature turnover of market makers, bidding behavior should be modeled in a dynamic setting. We introduce a dynamic model and show that static estimates over-predict true valuations when market makers may lose their status.

KW - Faculty of Social Sciences

KW - Treasury Auctions

KW - Multi-unit Auctions

KW - Structural Estimation

KW - Bidding Behavior

KW - Balance-sheet

KW - Data

KW - Market Making

M3 - Working paper

T3 - University of Copenhagen. Institute of Economics. Discussion Papers (Online)

BT - Liquidity Shocks, Market Maker Turnover, and Bidding Behavior in Treasury Auctions

ER -

ID: 182540305