Title

Preferred Habitat For Liquidity In International Short-Term Interest Rates

Keywords

International interest rates; LIBOR; Preferred habitat

Abstract

Risk-shifting window dressing and a preferred habitat for liquidity have been offered as possible explanations as to why US money market rates are higher before the year-end than afterwards. The two hypotheses differ in the timing of the rate decline at the year-end and the evidence on the timing of the decline supports the preferred habitat hypothesis in US money markets. This paper extends this line of research to the behavior of international short-term interest rates at year-ends and quarter-ends using London interbank offer rates (LIBOR) for 11 different currencies. The results suggest that the behavior of LIBOR for five currencies: the US Dollar, Euro, Japanese Yen, Swiss Franc, and German Mark is consistent with year-end or quarter-end preferred habitats for liquidity. Other currencies do not demonstrate consistently distinct patterns in turn-of-the-year and turn-of-the-quarter yields. None of the results provides any support for risk-shifting window dressing. © 2007 Elsevier B.V. All rights reserved.

Publication Date

2-1-2008

Publication Title

Journal of Banking and Finance

Volume

32

Issue

2

Number of Pages

240-250

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/j.jbankfin.2007.03.007

Socpus ID

38749130902 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/38749130902

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