Business Publications

Document Type

Article

Publication Date

10-2017

Journal

Review of Finance

Volume

22

Issue

2

First Page

491

URL with Digital Object Identifier

https://doi.org/10.1093/rof/rfx045

Last Page

520

Abstract

The investigations into LIBOR have highlighted that it is subject to manipulation. We examine a new method for constructing LIBOR that produces an unbiased estimator of the true rate. LIBOR itself is based solely on transactions. We allow for fines when a bank’s transaction is different than a comparison rate, which depends on the set of transactions and non-manipulated rates elicited by a revealed preference mechanism. These non-manipulated rates will always be used in the fines, but transactions may not. We address how this approach applies to other financial benchmarks and how it works even in markets in which there are few transactions.

Notes

This is the author approved version of an article originally published in Review of Finance

Available for download on Tuesday, October 01, 2019

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