Professor Angel Hernando-Veciana angel.hernando-veciana@durham.ac.uk
Visiting Professor
Cheap Talk and Strategic Rounding in Libor Submissions
Hernando-Veciana, Angel; Tröge, Michael
Authors
Michael Tröge
Abstract
Interbanking rates were, until recently, based on judgmental estimates of borrowing costs. We interpret this as a cheap-talk game that allowed banks to communicate nonverifiable information about their opportunity cost to potential counterparties. Under normal market conditions there is a welfare maximizing equilibrium where banks truthfully disclose their borrowing cost, but, in times of financial stress, only “coarse” equilibria survive. We take this prediction to the data and show that banks round more frequently if the risk of the bank increases. Rounding is also more frequent for the more liquid short-term rates and certain benchmark maturities.
Citation
Hernando-Veciana, A., & Tröge, M. (2020). Cheap Talk and Strategic Rounding in Libor Submissions. The Review of Financial Studies, 33(6), 2585-2621. https://doi.org/10.1093/rfs/hhz101
Journal Article Type | Article |
---|---|
Acceptance Date | Jun 28, 2019 |
Online Publication Date | Sep 9, 2019 |
Publication Date | Jun 30, 2020 |
Deposit Date | Jul 5, 2019 |
Publicly Available Date | Sep 9, 2021 |
Journal | Review of Financial Studies |
Print ISSN | 0893-9454 |
Electronic ISSN | 1465-7368 |
Publisher | Oxford University Press |
Peer Reviewed | Peer Reviewed |
Volume | 33 |
Issue | 6 |
Pages | 2585-2621 |
DOI | https://doi.org/10.1093/rfs/hhz101 |
Public URL | https://durham-repository.worktribe.com/output/1298243 |
Files
Accepted Journal Article
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Copyright Statement
This is a pre-copyedited, author-produced PDF of an article accepted for publication in Review of financial studies following peer review. The version of record Hernando-Veciana, Angel & Tröge, Michael (2020). Cheap Talk and Strategic Rounding in Libor Submissions. Review of Financial Studies 33(6): 2585-2621 is available online at: https://doi.org/10.1093/rfs/hhz101
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