Title: Detection of manipulation of inter-bank overnight rate using Euclidean-based time series cluster analysis

Authors: Murphy Choy; Enoch Ch'ng

Addresses: School of Information Systems, Singapore Management University, 80 Stamford Road, 178902, Singapore ' School of Information Systems, Singapore Management University, 80 Stamford Road, 178902, Singapore

Abstract: 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 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 one-month rates on an annual basis. The results of our study support that the SIBOR is not manipulated like LIBOR.

Keywords: London interbank offered rate; LIBOR; Singapore interbank offered rate; SIBOR; time series; cluster analysis; Euclidean distance; IBOR manipulation; interest rates.

DOI: 10.1504/IJPMB.2014.060408

International Journal of Process Management and Benchmarking, 2014 Vol.4 No.2, pp.198 - 212

Available online: 13 Apr 2014 *

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