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on Market Microstructure |
| By: | Troy Davig (Federal Reserve Bank of Kansas City); Jeffrey R. Gerlach (Department of Economics, College of William and Mary) |
| Abstract: | Using high-frequency data in a Markov-switching framework, we identify states that imply different responses of the yield curve to unexpected changes in the federal funds target. Empirical estimates reveal a low-volatility state where long-term bonds respond significantly, and in a predictable manner, to unexpected changes in the federal funds target. An alternative state exists with higher volatility, where unexpected changes in the federal funds target raise the short-end of the yield curve, but have no significant effect on the long-end. The low-volatility state for long-term bonds occurs from September 1995 to May 1999 and again from March 2000 to January 2002. The timing of the switches between the two states for long-term bonds coincides with changes in FOMC communication policy - though not all changes in communications policy induce a switch. |
| Keywords: | Monetary Policy, Bond Market, Markov-Switching, Central Bank Communications |
| JEL: | E43 E58 G12 |
| Date: | 2006–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:cwm:wpaper:31&r=mst |
| By: | Ping Zhang (University of Nottingham) |
| Abstract: | Collusive equilibria in share auctions despite being the focus of previous theoretical research, have received little empirical or experimental support. We develop a theoretical model of uniform price initial public offering (IPO) auctions and show that there exists a continuum of pure strategy equilibria where investors with a higher expected valuation bid more aggressively and as a result the market price increases with the market value. The collusive equilibria lie in fact on the boundary of this set, which is obtained under stricter conditions when demand is discrete than in the continuous format. Our results have important implications for the design of IPO auctions. |
| Keywords: | IPO, uniform price auction, divisible goods, share auctions, tacit collusion |
| JEL: | D44 G12 D82 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdx:dpaper:2006-06&r=mst |
| By: | Ping Zhang (University of Nottingham) |
| Abstract: | We compare the performances of uniform price auctions with fixed price offerings using laboratory experiments. In the uniform treatment, there is no evidence that the tacit collusion equilibria, which predict symmetric behaviors among bidders, have been achieved. On the contrary, in accordance with another set of equilibria, subjects with higher expected value bid more aggressively and obtain a higher allocation. The resulting market price increases with the market value and is significantly higher than the expected value of a bidder with a low value signal. As a consequence, our experiment suggests that the uniform price auctions are superior to fixed price offerings in terms of raising revenues. |
| Keywords: | experiment, IPO, uniform price auction, fixed price offering, share auction |
| JEL: | D44 G12 C91 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdx:dpaper:2006-05&r=mst |