A re-examination of Libor rigging: a time-varying cointegration perspective

Chew Lian Chua, Sandy Suardi, Yuanchen Chang

Research output: Journal PublicationArticlepeer-review

2 Citations (Scopus)

Abstract

Using a time-varying cointegration framework, this paper examines the alleged manipulation of the London interbank offered rate (Libor) during the 2007–2009 financial crisis. Bank quotes are found to be poor indicators of their financing costs in the crisis period. The aberration in the estimated values of the cointegrating and error correction parameters governing the long-run equilibrium relationship between bank quotes and the final Libor suggests banks were submitting lower quotes. Further analysis which controls for an individual bank’s credit risk, market wide credit and liquidity risks, and a common market factor, demonstrate possible evidence of Libor rigging during the crisis period.

Original languageEnglish
Pages (from-to)1367-1386
Number of pages20
JournalQuantitative Finance
Volume17
Issue number9
DOIs
Publication statusPublished - 2 Sep 2017
Externally publishedYes

Keywords

  • Collusion
  • Libor
  • Manipulation
  • Time-varying cointegration

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance (all)

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