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Time-varying financial stress linkages: Evidence from the LIBOR-OIS spreads

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  • Ji, Philip Inyeob

Abstract

The present article studies the dynamic linkages between the LIBOR-OIS spreads of major currencies for the period of March 1, 2006 to November 12, 2008. The Dynamic Conditional Correlation model is employed to examine the impact of the global financial crisis on the cross-currency correlations of the spreads. The overall evidence suggests that the crisis increased the degree of money market integration of the Australian dollar, the Euro and the Sterling with the US dollar. The Japanese Yen appears to have been insulated from the US dollar shortage shocks throughout the period. In addition, the FX swap market liquidity plays an important role in explaining the market integration, whereas the credit worthiness difference between the LIBOR panel banks is a less significant factor.

Suggested Citation

  • Ji, Philip Inyeob, 2012. "Time-varying financial stress linkages: Evidence from the LIBOR-OIS spreads," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 647-657.
    • Handle: RePEc:eee:intfin:v:22:y:2012:i:4:p:647-657
    DOI: 10.1016/j.intfin.2012.04.001
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    3. Wong, Alfred, 2019. "Currency jumps, Euribor-OIS spreads and the volatility skew: A study on the dollar-euro crash risk of 2007–2015," Finance Research Letters, Elsevier, vol. 29(C), pages 7-16.
    4. Pedro Pires Ribeiro & José Dias Curto, 2017. "Volatility spillover effects in interbank money markets," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(1), pages 105-136, February.
    5. Bulusu, Narayan, 2024. "Disentangling the supply and announcement effects of open market operations," Journal of Financial Markets, Elsevier, vol. 67(C).
    6. José Da Fonseca & Peiming Wang, 2016. "A joint analysis of market indexes in credit default swap, volatility and stock markets," Applied Economics, Taylor & Francis Journals, vol. 48(19), pages 1767-1784, April.
    7. Cui, Jin & In, Francis & Maharaj, Elizabeth Ann, 2016. "What drives the Libor–OIS spread? Evidence from five major currency Libor–OIS spreads," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 358-375.

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    More about this item

    Keywords

    Global financial crisis; LIBOR-OIS spreads; Dynamic Conditional Correlation model;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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