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Tracking the Libor Rate

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Author Info

  • Abrantes-Metz, Rosa
  • Villas-Boas, Sofia B.
  • Judge, George G.

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 Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt2p33x7dk.

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Date of creation: 11 Mar 2013
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Handle: RePEc:cdl:agrebk:qt2p33x7dk

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Related research

Keywords: Social and Behavioral Sciences; Life Sciences; market rate data; Libor; Benford’s law; second digit distributions;

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References

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  1. David E. Giles, 2005. "Benford’s Law and Naturally Occurring Prices in Certain ebaY Auctions," Econometrics Working Papers 0505, Department of Economics, University of Victoria.
  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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Cited by:
  1. Christoph Diehl, 2013. "The LIBOR mechanism and related games," Working Papers 482, Bielefeld University, Center for Mathematical Economics.
  2. 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.
  3. Andrea Monticini & Daniel L. Thornton, 2013. "The effect of underreporting on LIBOR rates," Working Papers 2013-008, Federal Reserve Bank of St. Louis.

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