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Tracking the Libor rate

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  • Rosa Abrantes-Metz
  • Sofia Villas-Boas
  • George Judge

Abstract

With an eye to providing a methodology for tracking the dynamic integrity of prices for important market indicators, in this article we use Benford second digit (SD) reference distribution to track the daily London Interbank Offered Rate (Libor) over the period 2005 to 2008. This reference, known as Benford's law, is present in many naturally occurring numerical data sets as well as in several financial data sets. We find that in two recent periods, Libor rates depart significantly from the expected Benford reference distribution. This raises potential concerns relative to the unbiased nature of the signals coming from the 16 banks from which the Libor is computed and the usefulness of the Libor as a major economic indicator.

Suggested Citation

  • Rosa Abrantes-Metz & Sofia Villas-Boas & George Judge, 2011. "Tracking the Libor rate," Applied Economics Letters, Taylor & Francis Journals, vol. 18(10), pages 893-899.
    • Handle: RePEc:taf:apeclt:v:18:y:2011:i:10:p:893-899
    DOI: 10.1080/13504851.2010.515197
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    References listed on IDEAS

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    1. Tam Cho, Wendy K. & Gaines, Brian J., 2007. "Breaking the (Benford) Law: Statistical Fraud Detection in Campaign Finance," The American Statistician, American Statistical Association, vol. 61, pages 218-223, August.
    2. David Giles, 2007. "Benford's law and naturally occurring prices in certain ebaY auctions," Applied Economics Letters, Taylor & Francis Journals, vol. 14(3), pages 157-161.
    3. George Judge & Laura Schechter, 2009. "Detecting Problems in Survey Data Using Benford’s Law," Journal of Human Resources, University of Wisconsin Press, vol. 44(1).
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