Analyzing The Demand Of The Bidders And Auction Results

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Nyborg et al (2002) conduct their study by analysing the demand of the bidders and auction results in Swedish Treasury auctions during uncertainty at the time of when the bidding occurs. They find that bidders respond to uncertainty in three separate ways; as uncertainty increases, bidders reduce the price levels at which they want to bid, they reduce quantity demanded and bidders also increase bidding dispersion amongst the same bond. Nyborg et al also deem auction size to be a less important factor than price uncertainty in how it influences the bidders behaviour even though as the auction size increases, bidders increase their individual demands. They also suggest that cautious bidding involves both a reduction in prices and a reduction…show more content…
Ahmad and Steeley (2007) further examine a type of price discovery in the bond market review the types of markets there are, i.e. primary or secondary bond market, by specifically examining the secondary market. Their objective is to review the secondary market pricing behaviour of U.K bond auctions by using an event study to test the statistical significance of auctions on the secondary market bond prices. In their event study, they use the price movement that is associated with a level change in the zero coupon yield curve as an appropriate benchmark. Whilst running the regressions on the cumulative average abnormal returns (they refer to them as CAR(-x, x) ) they focus on three scenarios found in earlier yield drift testing, which takes place during 6 days before the auction, on the auction day and up to 8 days after the auction (CAR(-6,-1), CAR(0,0) and CAR(+1,+8)). They find there is a negative average return in the post auction period. They also find the most significant variables in explaining bond prices, from their regression modelling, are the cover and size of the auction. There is also a positive association between the cover variable and the pre-auction CAR, which means that the greater the demand for gilts at an auction, the greater the abnormal returns. Cover and post-auction CAR are negatively associated showing that the greater the excess demand at an auction, the smaller the
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