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Price discovery in US money market benchmarks: LIBOR vs. SOFR

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  • Fassas, Athanasios P.

Abstract

This note evaluates the price discovery contribution of the chosen successor to LIBOR in the US, i.e., the Secured Overnight Funding Rate (SOFR), using well-established methodologies in the empirical literature. Even though the transition away from LIBOR is supposed to enhance the transparency of benchmark rates, we show that LIBOR still dominates, albeit at a declining pace, the price discovery process in the US money market interest rates.

Suggested Citation

  • Fassas, Athanasios P., 2021. "Price discovery in US money market benchmarks: LIBOR vs. SOFR," Economics Letters, Elsevier, vol. 204(C).
    • Handle: RePEc:eee:ecolet:v:204:y:2021:i:c:s0165176521001592
    DOI: 10.1016/j.econlet.2021.109882
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    Cited by:

    1. Indriawan, Ivan & Jiao, Feng & Tse, Yiuman, 2021. "The SOFR and the Fed’s influence over market interest rates," Economics Letters, Elsevier, vol. 209(C).
    2. Li, Miao & Xiong, Tao, 2023. "Is China's new live hog futures market efficient? Evidence from an analysis of market quality, price discovery and hedging effectiveness," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 68(01), September.
    3. Lien, Donald, 2022. "Comparisons of Alternative Information Share Measures," Finance Research Letters, Elsevier, vol. 50(C).
    4. Indriawan, Ivan & Jiao, Feng & Tse, Yiuman, 2022. "Price discovery between forward-looking SOFR and LIBOR," Finance Research Letters, Elsevier, vol. 47(PB).

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    More about this item

    Keywords

    SOFR; LIBOR; Money market; Price discovery; Information shares;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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