Recent empirical research has shown that, compared to the discriminatory price auction format, the uniform price format reduces the difference between when-issued and auction prices, i.e. the so called auction discount. The reopening of the auction, through the supply of additional quantities of the security, has also been advocated as a means to prevent short squeezes. We analyze the uniform price auctions of Italian Treasury bonds, where each issue is reopened regularly in order to improve information aggregation and increase the availability of each security. We show that: i) as concerns the initial auctions, the discount based on when-issued prices before the auction is not statistically significant; ii) in the reopenings, employing a data set which includes all secondary market trades at firm level, both the market-average and the individual discounts are not significantly different from zero. These conclusions indicate that the uniform auction mechanism is revenue efficient for the Italian Treasury, in analogy with the previous findings for the Treasury auctions in the US and Mexico, and provide support for the proposals aimed at introducing the practice of reopening in other countries.
This paper is a revised version of Ch. 4 of my Ph.D. dissertation, discussed at the London Business School.
