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Why government bonds are sold by auction and corporate bonds by posted-price selling


Ziegler, Alexandre; Habib, Michel (2007). Why government bonds are sold by auction and corporate bonds by posted-price selling. Journal of Financial Intermediation, 16(3):343-367.

Abstract

When information is costly, a seller may wish to prevent prospective buyers from acquiring information, for the cost of information acquisition ultimately is borne by the seller. A seller can achieve the desired prevention through posted-priceselling, by offering prospective buyers a discount. No such prevention is possible in the case of an auction. We establish the result that the seller prefers posted-priceselling when the cost of information acquisition is high andauctions when it is low. We view corporatebonds as an instance of the former case, andgovernmentbonds as an instance of the latter.

When information is costly, a seller may wish to prevent prospective buyers from acquiring information, for the cost of information acquisition ultimately is borne by the seller. A seller can achieve the desired prevention through posted-priceselling, by offering prospective buyers a discount. No such prevention is possible in the case of an auction. We establish the result that the seller prefers posted-priceselling when the cost of information acquisition is high andauctions when it is low. We view corporatebonds as an instance of the former case, andgovernmentbonds as an instance of the latter.

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1 citation in Web of Science®
1 citation in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Governmentbonds; Corporatebonds; Auctions; Posted-priceselling; Costly information
Language:English
Date:2007
Deposited On:22 Jun 2012 22:36
Last Modified:05 Apr 2016 15:52
Publisher:Elsevier
ISSN:1042-9573
Publisher DOI:https://doi.org/10.1016/j.jfi.2007.03.006
Other Identification Number:merlin-id:3441
Permanent URL: https://doi.org/10.5167/uzh-63187

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