Preferred habitat for liquidity in international short-term interest rates
Risk-shifting window dressing and a preferred habitat for liquidity have been offered as possible explanations as to why US money market rates are higher before the year-end than afterwards. The two hypotheses differ in the timing of the rate decline at the year-end and the evidence on the timing of the decline supports the preferred habitat hypothesis in US money markets. This paper extends this line of research to the behavior of international short-term interest rates at year-ends and quarter-ends using London interbank offer rates (LIBOR) for 11 different currencies. The results suggest that the behavior of LIBOR for five currencies: the US Dollar, Euro, Japanese Yen, Swiss Franc, and German Mark is consistent with year-end or quarter-end preferred habitats for liquidity. Other currencies do not demonstrate consistently distinct patterns in turn-of-the-year and turn-of-the-quarter yields. None of the results provides any support for risk-shifting window dressing.
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- Mark D. Griffiths & Drew B. Winters, 2005. "The Turn of the Year in Money Markets: Tests of the Risk-Shifting Window Dressing and Preferred Habitat Hypotheses," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1337-1364, July.
- Park, Sang Yong & Reinganum, Marc R., 1986. "The puzzling price behavior of treasury bills that mature at the turn of calendar months," Journal of Financial Economics, Elsevier, vol. 16(2), pages 267-283, June.
- Mark Griffiths & Drew Winters, 1997. "On a Preferred Habitat for Liquidity at the Turn-of-the-Year: Evidence from the Term-Repo Market," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(1), pages 21-38, August.
- Cyree, Ken B & Winters, Drew B, 2001. "Analysis of Federal Funds Rate Changes and Variance Patterns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(3), pages 403-418, Fall.
- Ken B. Cyree & Mark D. Griffiths & Drew B. Winters, 2003. "On the pervasive effects of Federal Reserve settlement regulations," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 27-46.
- Vladimir Kotomin & Drew Winters, 2006. "Quarter-End Effects in Banks: Preferred Habitat or Window Dressing?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 29(1), pages 61-82, February.
- Ogden, Joseph P., 1987. "The End of the Month as a Preferred Habitat: A Test of Operational Efficiency in the Money Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(03), pages 329-343, September.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
- Allen, Linda & Saunders, Anthony, 1992. "Bank window dressing: Theory and evidence," Journal of Banking & Finance, Elsevier, vol. 16(3), pages 585-623, June.
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