Asymmetric convergence and risk shift in the TED spreads
This study examines the asymmetry and adjustment to the long-run equilibrium for the TED spread formed as the difference between LIBOR and Treasury bill rates for three maturities. It also explores the adjustment each individual rate undergoes to move the spread to its equilibrium during widenings and narrowings. While the results show strong asymmetry in the spread movements, the adjustment clearly shows a shift in spread risk in 2007. Both asymmetry and convergence are also restored when the shift in risk is addressed. While the T bills generally adjust faster than LIBOR as our findings suggest, the speed for the three-month bills is phenomenal in the subperiod 2007–2008. The fast convergence of the shorter term than the longer term maturities during negative shocks and under higher risk indicates that the diagnostic of the crisis in 2007–2009 pertains to elevated risk than to lack of liquidity. The results should be valuable to investors, policy makers and researchers working on the 2007–2009 financial crisis.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 22 (2011)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/620163|
When requesting a correction, please mention this item's handle: RePEc:eee:ecofin:v:22:y:2011:i:3:p:277-297. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.