Tracking the Libor Rate
Rosa M. Abrantes-Metz
Global Economics Group, LLC; New York University - Leonard N. Stern School of Business - Department of Economics
Sofia Berto Villas-Boas
University of California, Berkeley - Agricultural & Resource Economics
July 21, 2010
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.
Number of Pages in PDF File: 30
Keywords: market rate data, Libor, Benford’s law, second digit distributions, aggregation game, agents’ signals, manipulation, collusion, conspiracy
JEL Classification: C10, C24
Date posted: July 23, 2010
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