China's Bond Auction Market Empirical Research

In modern market economy countries, treasury securities have become macro intervening tools for governments. In 1981, China started issuing Treasury bond. After that, the scales become larger and larger. Especially from 1998, in order to deal with Asia financial crisis, China continued to enlarge the issue of treasury securities for six years.What are the optimal auctions forms for the Government to issue treasury securities is becoming the important problem for the Government and the economists. The Government issuing treasury securities commonly use three auction forms: multi-price auction, single-price auction and the hybrid auction. Most economists recommend that the single-price auction is the best auction form for the Government. But Back and Zender (1993) argue that the single-price auction can induce collusion between the bidders, in some equilibrium point, the multi-price auction can bring more expected revenues of the seller than the single-price auction. The theory study of the treasury auction has no conclusion, so the empirical study becomes more important.There are three empirical issues examined. The first issue is identifying whether there is a loser's nightmare in the single-price auction or in the multiple-price auction. The second issue is to identify whether there is a significant downward shading of bids in the multiple auction or in the single-price auction, even in the hybrid-price auction. The third issue pursues to find an answer empirically to the question of the revenue ranking between the multiple-price auction and the single-price auction and the revenue ranking between the hybrid-price auction and the single-price auction. The significant contributions of this work are:1. Evidence that there is a significant difference in the bidding structure between the multiple-price auction and the single-price auction. The multiple-price auction can induce loser's nightmare.2. Evidence that there is a significant downward shading of bids in the multiple-price auction format and in the single-price auction format, but not present inthe hybrid-price auction format.3. Evident that the auction format is an economically significant choice for the auction participants a well as auctioneer.The dissertation consists of seven chapters, which are organized as follows:In chapter 1, the research background and signification are introduced. We review briefly the treasury auction theory and the main contents in this dissertation are also summarized here.Chapter 2 presents a review of the pertinent literature dealing with the auction of securities.Chapter 3 provides a brief discussion of the different type auctions as well as description of the market for Treasury securities of China.Chapter 4 develops the hypotheses of interest in this dissertation with regards to the loser's nightmare, the winner's course and the revenue ranking.Chapter 5 provides the statistical and the econometric methodology which is used to test the hypotheses developed in chapter four.Chapter 6 reports the results of the empirical analysis and the final chapter presents some conclusions and directions for future research.