Bidding and Performance in Repo Auctions - Evidence from ECB Open Market Operations

We study bidder behavior and performance in 53 main refinancing operations (quot;repo auctionsquot;) of the European Central Bank (ECB). The data set starts with the first auction after the ECB changed from fixed rate tenders to variable rate tenders. We find that private information and the winner's curse are not important in these auctions. The minimum bid rate and the level of secondary market rates play a crucial role in bidder behavior and auction performance. We also document that large bidders do better than small bidders, apparently because they use quot;smarterquot; strategies which involve using more bids and having more kurtosis in their individual bid distribution. The penultimate auction in every reserve maintenance period has less underpricing than the other auctions within the maintenance period. Finally, from the two cases of underbidding covered by the sample period, it appears this was driven by particularly large cutbacks by large, rather than small, bidders