Sovereign debt auctions: Uniform or discriminatory?

Menachem Brenner, Dan Galai, Orly Sade*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

33 Scopus citations

Abstract

Many financial assets, especially government bonds, are issued by an auction. An important feature of the design is the auction pricing mechanism: uniform versus discriminatory. Theoretical papers do not provide a definite answer regarding the dominance of one type of auction over the other. We investigate the revealed preferences of the issuers by surveying the sovereign issuers that conduct auctions. We find that the majority of the issuers/countries in our sample use a discriminatory auction mechanism for issuing government debt. We use a multinomial logit procedure and discriminatory analysis to investigate the mechanism choice. It was interesting to find that market-oriented economies and those that practice common law tend to use a uniform method while economies who are less market oriented and practice civil law tend to use discriminatory price auctions.

Original languageAmerican English
Pages (from-to)267-274
Number of pages8
JournalJournal of Monetary Economics
Volume56
Issue number2
DOIs
StatePublished - Mar 2009

Bibliographical note

Funding Information:
We would like to thank the editor, Robert King and an anonymous referee for their helpful comments and suggestions. We benefited from discussions with Bill Allen, Bruno Biais, Peter Cramton, Kenneth Garbade, Avner Kalay, Marco Pagano, Michal Passerman, Jesus M. Salas, Anthony Saunders, Raghu Sundaram, Avi Wohl, Yishay Yafeh and Jaime Zender. We thank Moran Ofir for her excellent research assistance. We would also like to thank the participants of the 2006 European Finance Association Meeting in Zurich, MTS 2006, Istanbul and FUR XIII 2006, Rome. We also benefited from comments received from the participants of seminars at Tel-Aviv University, IDC (Israel), NYU, the University of Colorado at Boulder, University of Massachusetts at Amherst, University of Utah, University of Houston and the Federal Reserve Bank of NY. We thank “The Caesarea Edmond Benjamin de Rothschild Center for Capital Markets and Risk” at IDC, the Krueger Center for Finance and the Zagagi Center at the Hebrew University of Jerusalem for partial financial support.

Keywords

  • Discriminatory auction
  • T-bills
  • Treasury bonds
  • Uniform auction

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