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Price discovery in US money market benchmarks: LIBOR vs. SOFR

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  • Fassas, Athanasios P.

Abstract

This note evaluates the price discovery contribution of the chosen successor to LIBOR in the US, i.e., the Secured Overnight Funding Rate (SOFR), using well-established methodologies in the empirical literature. Even though the transition away from LIBOR is supposed to enhance the transparency of benchmark rates, we show that LIBOR still dominates, albeit at a declining pace, the price discovery process in the US money market interest rates.

Suggested Citation

  • Fassas, Athanasios P., 2021. "Price discovery in US money market benchmarks: LIBOR vs. SOFR," Economics Letters, Elsevier, vol. 204(C).
    • Handle: RePEc:eee:ecolet:v:204:y:2021:i:c:s0165176521001592
    DOI: 10.1016/j.econlet.2021.109882
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    Cited by:

    1. Lien, Donald, 2022. "Comparisons of Alternative Information Share Measures," Finance Research Letters, Elsevier, vol. 50(C).
    2. Indriawan, Ivan & Jiao, Feng & Tse, Yiuman, 2022. "Price discovery between forward-looking SOFR and LIBOR," Finance Research Letters, Elsevier, vol. 47(PB).
    3. Indriawan, Ivan & Jiao, Feng & Tse, Yiuman, 2021. "The SOFR and the Fed’s influence over market interest rates," Economics Letters, Elsevier, vol. 209(C).

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    More about this item

    Keywords

    SOFR; LIBOR; Money market; Price discovery; Information shares;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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