Sigbjørn Atle Berg, Benzion Boukai og Michael Landsberger
Working Paper 1998/8. 30 p. ISSN 0801-2504. ISBN 82-7553-131-4.
This paper presents an empirical analysis of market bid functions for Treasury bills and bonds, in auctions conducted by Norges Bank during the period 1991-1996. A special feature of the data is that the Bank applied both auction rules, pay-your-bid and the uniform format, to different securities. The empirical analysis conducted in this paper shows that:
i. In spite of large fluctuations across auctions, it is possible to establish from the Norwegian data an intertemporally stable market bid function. The latter has an S-shape and can be well approximated by a three parameter logistic curve. The fluctuations across auctions can be modelled as random shocks affecting the parameters of a fixed (logistic) structure that is intertemporally stable.
ii. Secondary market yields play a crucial role in determining market bid functions.
iii. These properties are preserved under both auction rules.
iv. In comparing the performance of the pay-your-bid auction rule and the uniform format, we show that auctioning bonds using the uniform format resulted in large savings for Norges Bank, about 24 basis points.
v. IPOs are more expensive to auction than re-openings.