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

Jin Cui, Francis In, Elizabeth Ann Maharaj

Research output: Contribution to journal › Article › Research › peer-review

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 counter party 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.
Original languageEnglish
Pages (from-to)358-375
Number of pages18
JournalInternational Review of Economics and Finance
Volume45
DOIs
Publication statusPublished - 1 Sep 2016

Keywords

  • Bank risk fundamentals
  • Banking system leverage
  • Credit and counterparty risks
  • Libor–OIS spread change determinants
  • Market liquidity and volatility
  • State of the economy

Cite this

Cui, Jin ; In, Francis ; Maharaj, Elizabeth Ann. / What drives the Libor–OIS spread? Evidence from five major currency Libor–OIS spreads. In: International Review of Economics and Finance. 2016 ; Vol. 45. pp. 358-375.
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Cui, J, In, F & Maharaj, EA 2016, 'What drives the Libor–OIS spread? Evidence from five major currency Libor–OIS spreads' International Review of Economics and Finance, vol. 45, pp. 358-375. https://doi.org/10.1016/j.iref.2016.04.002

What drives the Libor–OIS spread? Evidence from five major currency Libor–OIS spreads. / Cui, Jin; In, Francis; Maharaj, Elizabeth Ann.

In: International Review of Economics and Finance, Vol. 45, 01.09.2016, p. 358-375.

Research output: Contribution to journal › Article › Research › peer-review

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Cui J, In F, Maharaj EA. What drives the Libor–OIS spread? Evidence from five major currency Libor–OIS spreads. International Review of Economics and Finance. 2016 Sep 1;45:358-375. https://doi.org/10.1016/j.iref.2016.04.002

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