Libor Manipulation: Cui Bono?
Mendoza College of Business, University of Notre Dame
University of Notre Dame
Jens Carsten Jackwerth
University of Konstanz - Department of Economics
University of Lugano - Institute of Finance; Swiss Finance Institute
September 3, 2015
We study the role of enforcement in preventing financial market misconduct by analyzing manipulation of the London Interbank Offer Rate (Libor). Using banks' Libor submissions from 1999-2012, we first explore the motives for Libor manipulation and document pervasive evidence of banks misreporting Libor submissions to profit from their Libor-related products. We then show that manipulation was initially stronger for banks incorporated outside the U.S., where enforcement is historically weaker, and that it disappeared in the aftermath of Libor investigations in 2010-2011. Our results suggest that a credible threat of prosecutions with substantial penalties is effective in preventing financial market misconduct.
Number of Pages in PDF File: 51
Keywords: Libor, manipulation, financial market misconduct, enforcement
JEL Classification: G11, G12, K42
Date posted: October 18, 2013 ; Last revised: September 5, 2015
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