Price elasticity of demand and risk-bearing capacity in sovereign bond auctions

• 成果类型: Article; Early Access
• 署名作者: Albuquerque, Rui; Cardoso-Costa, Jose Miguel; Faias, Jose Afonso
• 署名单位: Boston College; Center for Economic & Policy Research (CEPR); Banco de Portugal; Universidade Nova de Lisboa; Universidade Catolica Portuguesa
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhae027
• 发表日期: 2024
• 关键词: liquidity; BEHAVIOR; CURVES; stocks; DYNAMICS; shocks

摘要

The paper uses bids submitted by primary dealer banks at auctions of sovereign bonds to quantify the price elasticity of demand. The price elasticity of demand correlates strongly with the volatility of returns of the same bonds traded in the secondary market but only weakly with their bid-ask spread. It predicts same-bond post-auction returns in the secondary market, even after controlling for pre-auction volatility. The evidence suggests that the price elasticity of demand is associated with the magnitude of price pressure in the secondary market around auction days and proxies for primary dealer risk-bearing capacity.Received: October 22, 2022; Editorial decision: December 24, 2023 by Editor: Ralph Koijen