The Libor Exposure of Money Market Funds

10 Pages Posted: 22 Sep 2012

See all articles by Robert Comment

Robert Comment

affiliation not provided to SSRN

Date Written: September 21, 2012

Abstract

Although most money market mutual funds hold floating rate instruments to some extent, funds rarely identify the market rate that any individual holding floats on. This makes it difficult to determine (directly) a fund’s exposure to Libor manipulation. Effective Libor exposure possibly is detectable (indirectly) in fund yields during August 2007 through December 2008, when short-term rates were unusually volatile. I perform time-series regressions of funds’ 7-day yield on Libor-Treasury and Libor-CP yield spreads for 725 U.S. public money market funds during this period. Unsurprisingly, there is strong evidence of exposure to a generic, non-Treasury component of short-term interest rates, for which Libor can proxy. But after controlling for commercial paper rates, the effective Libor exposure of money market funds, as a group, is small or zero.

Keywords: money market, Libor, manipulation

JEL Classification: G10, G18, G20

Suggested Citation

Comment, Robert, The Libor Exposure of Money Market Funds (September 21, 2012). Available at SSRN: https://ssrn.com/abstract=2150303 or http://dx.doi.org/10.2139/ssrn.2150303

Robert Comment (Contact Author)

affiliation not provided to SSRN

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