Document Type
Article
Publication Date
2008
Abstract
Risk-shifting window dressing and a preferred habitat for liquidity have been offered as possible explanations as to why U.S. 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 U.S. 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 U.S. 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.
Recommended Citation
Kotomin, Vladimir; Smith, Stanley D.; and Winters, Drew B., "Preferred Habitat for Liquidity in International Short-term Interest Rates" (2008). Faculty Publications - Finance, Insurance, and Law. 15.
https://ir.library.illinoisstate.edu/fpfil/15
Comments
This article was originally published in Journal of Banking and Finance 32, no. 2 (2008): 240-50. https://doi.org/10.1016/j.jbankfin.2007.03.007.