Auction Mechanisms and Bidding Behavior in Bond Markets: Evidence from China
Economics and Finance External Seminar.
We exploit the institutional set-up of four Chinese Government treasury security issuers: the Ministry of Finance, the Chinese Development Bank, the Export-Import Bank, and the Agriculture Development Bank to investigate whether treasury securities should be sold through the Spanish auction mechanism or through the traditional discriminatory- or uniform-price auction formats. We show that the Spanish auction mechanism generates the lowest yield rates (highest prices), followed by the uniform-price format, and the discriminatory-price format generates the highest yields. Finally, we quantify the winner's curse associated with uniform-price auctions.