GUERCIO Maria Belen
Libor at crossroads: Stochastic switching detection using information theory quantifiers
BARIVIERA, AURELIO F.; GUERCIO, M. BELÉN; MARTINEZ, LISANA B.; ROSSO, OSVALDO A.
CHAOS, SOLITONS AND FRACTALS
PERGAMON-ELSEVIER SCIENCE LTD
This paper studies the 28 time series of Libor rates, classified in seven maturities and four currencies, during the last 14 years. The analysis was performed using a novel technique in financial economics: the Complexity-Entropy Causality Plane. This planar representation allows the discrimination of different stochastic and chaotic regimes. Using a temporal analysis based on moving windows, this paper unveils an abnormal movement of Libor time series around the period of the 2007 financial crisis. This alteration in the stochastic dynamics of Libor is contemporary of what press called "Libor scandal", i.e. the manipulation of interest rates carried out by several prime banks. We argue that our methodology is suitable as a market watch mechanism, as it makes visible the temporal redution in informational efficiency of the market.