Bidding and Information: Evidence from Gilt-Edged Auctions

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 01 January 1996

Working Paper No. 42
By Francis Breedon and Joe Ganley

Many studies have shown that government debt auctions underprice debt compared with the secondary market. This paper corroborates this for certain forms of gilt auction by comparing the price received at auction with an almost identical parent stock in the secondary market. Although the sample is small, the parent/tranche price comparison gives a cleaner measure than used in other studies. The paper also compares non-fungible auctions (where the tranche differs slightly from the parent at auction and merges subsequently) with fully-fungible ones (where they are identical throughout). Significant underpricing only occurs in non-fungible auctions.

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