Detection of Manipulation of Inter-Bank Overnight Rate using Euclidean Based Time Series Cluster Analysis

• Main Authors: CHOY, Murphy Junyu, CHNG, Enoch
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2014
• Subjects: London interbank offered rate; LIBOR; Singapore interbank offered rate; SIBOR; time series; cluster analysis; Euclidean distance.; Computer Sciences; Finance and Financial Management; Numerical Analysis and Scientific Computing
• Online Access: https://ink.library.smu.edu.sg/sis_research/2177; http://dx.doi.org/10.1504/IJPMB.2014.060408
• Institution: Singapore Management University

The interbank offered rate (IBOR) is the interest rate at which banks can borrow funds from other banks in the interbank market. It is also used as the benchmark upon which rates or financial contracts for less preferred borrowers are based. In the light of the recent London IBOR (LIBOR) manipulation incident, this paper seeks to address the concern that IBOR is entirely controlled by the banks. The paper focuses on the comparison between LIBOR and Singapore IBOR (SIBOR) especially with regards to the behaviour of the interest rate with time. The nature of IBORs is such that the rates submitted by the banks will naturally be similar and should not differ excessively from the market as well as the other banks. We will compare the LIBOR and SIBOR from 2005 to 2011 with respect to the 1 month rates on an annual basis. The results of our study support that the SIBOR is not manipulated like LIBOR.