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Tracking the Libor Rate

30 Pages Posted: 23 Jul 2010  

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

Date Written: July 21, 2010

Abstract

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.

Keywords: market rate data, Libor, Benford’s law, second digit distributions, aggregation game, agents’ signals, manipulation, collusion, conspiracy

JEL Classification: C10, C24

Suggested Citation

Abrantes-Metz, Rosa M. and Villas-Boas, Sofia Berto, Tracking the Libor Rate (July 21, 2010). Available at SSRN: https://ssrn.com/abstract=1646600 or http://dx.doi.org/10.2139/ssrn.1646600

Rosa M. Abrantes-Metz

Global Economics Group, LLC ( email )

22 Cortlandt Street
Suite 1600
New York, NY 10007
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(917) 499-4944 (Phone)

HOME PAGE: http://www.globaleconomicsgroup.com

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

Sofia Villas-Boas (Contact Author)

University of California, Berkeley - Agricultural & Resource Economics ( email )

310 Giannini Hall # 3310
Berkeley, CA 94720
United States
510-643-6359 (Phone)
510-643-8911 (Fax)

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