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)
Year published
2016
Metadata
Show full item recordAbstract
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 ...
View more >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.
View less >
View more >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.
View less >
Journal Title
International Review of Economics and Finance
Volume
45
Subject
Banking, Finance and Investment not elsewhere classified
Economic Theory
Applied Economics
Banking, Finance and Investment