LIBOR Manipulation – Empirical Analysis of Financial Market Benchmarks Using Benford's Law

26 Pages Posted: 7 Dec 2013

See all articles by Bernhard Rauch

Bernhard Rauch

University of Regensburg

Max Goettsche

Catholic University of Eichstaett-Ingolstadt

Florian El Mouaaouy

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Date Written: December 5, 2013

Abstract

The London inter-bank offered rate (LIBOR) serves as a benchmark for many financial transactions worldwide today. These rates have been subject to manipulative conduct, false reporting and collusion. In forensic accounting, the Benford test has been implemented to successfully detect manipulated data. In this paper, we develop an approach to enable the application of the Benford method to LIBOR and other financial market benchmarks. The test results for all 150 LIBOR rates show a concentration of notably high deviations from the Benford distribution in single periods and currencies. Moreover, we find that the LIBOR quotes deviate much more than the banks’ credit default swap spreads. We conclude that all banks are presumably involved in the submission of manipulated data. Furthermore, we show that other financial benchmarks are worthy of closer scrutiny.

Keywords: Benford's law, Inter-bank offered rates, Financial institutions, Manipulation, Collusion, Price-fixing

JEL Classification: C16, G14, G24, K21

Suggested Citation

Rauch, Bernhard and Goettsche, Max and El Mouaaouy, Florian, LIBOR Manipulation – Empirical Analysis of Financial Market Benchmarks Using Benford's Law (December 5, 2013). Available at SSRN: https://ssrn.com/abstract=2363895 or http://dx.doi.org/10.2139/ssrn.2363895

Bernhard Rauch

University of Regensburg ( email )

93040 Regensburg
D-93040 Regensburg, 93053
Germany

Max Goettsche (Contact Author)

Catholic University of Eichstaett-Ingolstadt ( email )

Auf der Schanz 49
Ingolstadt, D-85049
Germany

Florian El Mouaaouy

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Schackstraße 4
Munich, 80539
Germany

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