Puzzle Of Overpricing

Auction is an efficient trading and pricing mechanism under information asymmetry.It is widely used in real life,especially in the issuance of national debt.Since the resumption in 1981,the issuance of Chinese national debt has grown rapidly,reaching 3.6 trillion yuan,which has made improving the efficiency of the national debt auction market become more and more concerned.This paper studies the auction data of Chinese book-entry treasuries and has found that there are significant negative auction yield differences in Chinese sovereign debt market,namely“overpricing”,and the auction prices are higher in hybrid auctions.Further studies have found that the level competition in the auction market has a positive impact on the pricing efficiency of the national debt auction and the lower the volatility of the price in the secondary market,the higher the pricing efficiency.In addition,the issuance fee can not only promote the competition in the national debt auction market,but also help to reduce the degree of information asymmetry.The uniform-price auction has higher competition and more information asymmetry than hybrid auction.In particular,this paper finds that when there is a when-issued market,the auction prices are more deviated from the secondary market level and the degrees of information asymmetry are higher,indicating that the benefits of when-issued market have not yet been reflected in Chinese national debt market.Finally,combined with the actual situation of Chinese national debt market and former conclusions,the following policy recommendations are given:First,actively develop transactions in OTC market to enrich the investor structure and improve the liquidity of the national debt market;Second,we must improve the transparency in the national debt market to reduce risks and uncertainties.Third,we should improve the management of primary dealers.Last but not least,actively promote derivatives such as treasury futures and when-issued market of treasury bonds.