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  • What drives the Libor-OIS spread? Evidence from five major currency Libor-OIS spreads

    Author(s)
    Cui, Jin
    In, Francis H.
    Maharaj, Elizabeth Ann
    Griffith University Author(s)
    In, Francis H.
    Year published
    2016
    Metadata
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    Abstract
    We investigate the determinants of five major currency Libor–OIS spread changes during the long run and interbank market distress periods. Consistent with recent studies, we find that systemic credit and counterparty risks, market liquidity, and volatility are spread determinants. However, the impact and relevance of these determinants change, depending on the stages of the interbank market crisis. We show that commercial bank leverage and the state of the economy are additional spread drivers. We also discover that the key USD spread is strongly related to banks' risk tolerance levels, capital concerns, and secondary market ...
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    We investigate the determinants of five major currency Libor–OIS spread changes during the long run and interbank market distress periods. Consistent with recent studies, we find that systemic credit and counterparty risks, market liquidity, and volatility are spread determinants. However, the impact and relevance of these determinants change, depending on the stages of the interbank market crisis. We show that commercial bank leverage and the state of the economy are additional spread drivers. We also discover that the key USD spread is strongly related to banks' risk tolerance levels, capital concerns, and secondary market liquidity during the crisis, even after controlling for other factors.
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    Journal Title
    International Review of Economics and Finance
    Volume
    45
    DOI
    https://doi.org/10.1016/j.iref.2016.04.002
    Subject
    Banking, Finance and Investment not elsewhere classified
    Economic Theory
    Applied Economics
    Banking, Finance and Investment
    Publication URI
    http://hdl.handle.net/10072/336469
    Collection
    • Journal articles

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