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The Fellowship of LIBOR: A Study of Spurious Interbank Correlations by the Method of Wigner-Ville Function

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  • Peter B. Lerner

Abstract

The manipulation of LIBOR by a group of banks became one of the major blows to the remaining confidence in financial industry. Yet, despite an enormous amount of popular literature on the subject, rigorous time-series studies are few. In my paper, I discuss the following hypothesis. Namely, if we should assume for a statistical null, the quotes, which were submitted by the member banks were true, the deviations from the LIBOR should have been entirely random because they were determined by idiosyncratic conditions by the member banks. This hypothesis can be statistically verified. Serial correlations of the rates, which cannot be explained by the differences in credit qualities of the member banks or the domicile Governments, were subjected to correlation tests. A new econometric method--the analysis of the Wigner-Ville function borrowed from quantum mechanics and signal processing--is used and explained for the statistical interpretation of regression residuals.

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  • Peter B. Lerner, 2016. "The Fellowship of LIBOR: A Study of Spurious Interbank Correlations by the Method of Wigner-Ville Function," Papers 1610.08414, arXiv.org, revised Apr 2020.
    • Handle: RePEc:arx:papers:1610.08414
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    References listed on IDEAS

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    1. Albert S. Kyle & S. Viswanathan, 2008. "How to Define Illegal Price Manipulation," American Economic Review, American Economic Association, vol. 98(2), pages 274-279, May.
    2. Rosa Abrantes-Metz & Sofia Villas-Boas & George Judge, 2011. "Tracking the Libor rate," Applied Economics Letters, Taylor & Francis Journals, vol. 18(10), pages 893-899.
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