An analysis of bidding in the Japanese government bond auctions

Hamao, Yasushi; Jegadeesh, Narasimhan

There has been constant friction between the U.S. and Japan on economic issues. After lengthy negotiations and threats of reprisal, Japan agreed to sell its Government Bonds through auctions that were open to foreign competition. This paper examines the bidding patterns in the Japanese Government Bond (JGB) auctions and it empirically tests the predictions of auction theory with JGB auction data. While the winning share of U.S. firms in 10-year JGB auction market went through ups and downs, their share in the 20-year market has increased steadily. We find that the winning shares of the U.S. investment banks are positively related to auction profits, whereas the winning shares of their Japanese counterparts show a negative association. We also find that the share of winnings of Japanese investment banks tend to be correlated with winnings of their compatriot investment banks but a similar relation is not found for US investment banks. We offer some possible explanations for these findings. The average profit in JGB auctions is not reliably different from zero, and the degree of competition and the level of uncertainty are found to be insignificant in determining auction profits.

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Academic Units
Center on Japanese Economy and Business
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Center on Japanese Economy and Business Working Papers, 126
Published Here
February 9, 2011