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Tracking the Libor rate

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Author Info

  • Abrantes-Metz, Rosa

    (Leonard N. Stern School of Business, New York University)

  • Villas-Boas, Sofia B.

    ()
    (University of California, Berkeley. Dept of agricultural and resource economics)

  • Judge, George G.

    ()
    (University of California, Berkeley. Dept of agricultural and resource economics)

Abstract

With an eye to providing a methodology for tracking the dynamic integrity of prices for important market indicators, in this paper we use Benford second digit reference distribution to track the daily London Interbank Offered Rate (Libor) over the period 2005-2008. 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 sixteen banks from which the Libor is computed and the usefulness of the Libor as a major economic indicator.

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Bibliographic Info

Paper provided by University of California at Berkeley, Department of Agricultural and Resource Economics and Policy in its series CUDARE Working Paper Series with number 1108R.

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Length: 15 pages
Date of creation: May 2010
Date of revision: Jul 2010
Handle: RePEc:are:cudare:1108r

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Related research

Keywords: market rate data; Libor; Benford’s law; second digit distributions; aggregation game; agents’ signals; manipulation; collusion; conspiracy;

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References

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  1. 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.
  2. 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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Citations

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Cited by:
  1. Christoph Diehl, 2013. "The LIBOR mechanism and related games," Working Papers 482, Bielefeld University, Center for Mathematical Economics.
  2. Samà, Danilo, 2014. "Cartel Detection and Collusion Screening: An Empirical Analysis of the London Metal Exchange," MPRA Paper 55363, University Library of Munich, Germany.
  3. Abrantes-Metz, Rosa M. & Kraten, Michael & Metz, Albert D. & Seow, Gim S., 2012. "Libor manipulation?," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 136-150.
  4. Monticini, Andrea & Thornton, Daniel L., 2013. "The effect of underreporting on LIBOR rates," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 345-348.

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