Do liquidity or credit effects explain the behavior of the BKBM-LIBOR differential?
This paper examines the evolution of the relationship between the onshore and offshore benchmarks for New Zealand dollar funding during the global financial crisis. In August 2007 the BKBM-LIBOR differential switched from positive to negative and then widened considerably following the collapse of Lehman Brothers in September 2008, before narrowing gradually as the turmoil in financial markets subsided. Our structural regression model and decomposition analyses show that changes in liquidity, proxied by bid/ask spreads, largely explain the changes in the BKBM-LIBOR differential over this period and that credit risk factors only played a minor role. However our analysis also shows that bid/ask spreads in the offshore market price information regarding counterparty credit risk, suggesting that our initial results could understate the role played by credit risk factors.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Huang, Rocco & Ratnovski, Lev, 2011.
"The dark side of bank wholesale funding,"
Journal of Financial Intermediation,
Elsevier, vol. 20(2), pages 248-263, April.
- Huang, Rocco & Ratnovski, Lev, 2010. "The dark side of bank wholesale funding," Working Paper Series 1223, European Central Bank.
- Lev Ratnovski & Rocco Huang, 2010. "The Dark Side of Bank Wholesale Funding," IMF Working Papers 10/170, International Monetary Fund.
- Rocco Huang & Lev Ratnovski, 2009. "The dark side of bank wholesale funding," Working Papers 09-3, Federal Reserve Bank of Philadelphia, revised 01 Jun 2010.
- Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2005.
"Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market,"
Journal of Finance,
American Finance Association, vol. 60(5), pages 2213-2253, October.
- Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2004. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit-Default Swap Market," NBER Working Papers 10418, National Bureau of Economic Research, Inc.
- McInish, Thomas H & Wood, Robert A, 1992. " An Analysis of Intraday Patterns in Bid/Ask Spreads for NYSE Stocks," Journal of Finance, American Finance Association, vol. 47(2), pages 753-64, June.
- François-Louis Michaud & Christian Upper, 2008. "What drives interbank rates? Evidence from the Libor panel," BIS Quarterly Review, Bank for International Settlements, March.
- Merton, Robert C, 1974.
"On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,"
Journal of Finance,
American Finance Association, vol. 29(2), pages 449-70, May.
- Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Longstaff, Francis A & Schwartz, Eduardo S, 1995. " A Simple Approach to Valuing Risky Fixed and Floating Rate Debt," Journal of Finance, American Finance Association, vol. 50(3), pages 789-819, July.
- Angelo Baglioni, 2012.
"Liquidity Crunch in the Interbank Market: Is it Credit or Liquidity Risk, or Both?,"
Journal of Financial Services Research,
Springer;Western Finance Association, vol. 41(1), pages 1-18, April.
- Angelo Baglioni, 2009. "Liquidity crunch in the interbank market: is it credit or liquidity risk, or both?," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0091, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
- Covrig, Vicentiu & Low, Buen Sin & Melvin, Michael, 2004.
"A Yen is Not a Yen: TIBOR/LIBOR and the Determinants of the Japan Premium,"
Journal of Financial and Quantitative Analysis,
Cambridge University Press, vol. 39(01), pages 193-208, March.
- Michael Melvin & Vincentiu Covrig & Buen Low, . "A Yen is not a Yen: TIBOR/LIBOR and the determinants of the 'Japan Premium'," Working Papers 2133360, Department of Economics, W. P. Carey School of Business, Arizona State University.
- Huang, Roger D & Masulis, Ronald W, 1999. "FX Spreads and Dealer Competition across the 24-Hour Trading Day," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 61-93.
- Jacob Gyntelberg & Philip Wooldridge, 2008. "Interbank rate fixings during the recent turmoil," BIS Quarterly Review, Bank for International Settlements, March.
- Eisenschmidt, Jens & Tapking, Jens, 2009. "Liquidity risk premia in unsecured interbank money markets," Working Paper Series 1025, European Central Bank.
- Paolo Angelini & Andrea Nobili & Maria Cristina Picillo, 2009.
"The interbank market after August 2007: what has changed, and why?,"
Temi di discussione (Economic working papers)
731, Bank of Italy, Economic Research and International Relations Area.
- Paolo Angelini & Andrea Nobili & Cristina Picillo, 2011. "The Interbank Market after August 2007: What Has Changed, and Why?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 923-958, 08.
- Pierre Collin-Dufresne, 2001. "The Determinants of Credit Spread Changes," Journal of Finance, American Finance Association, vol. 56(6), pages 2177-2207, December.
When requesting a correction, please mention this item's handle: RePEc:eee:pacfin:v:19:y:2011:i:2:p:173-193. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.