An Empirical Assessment of Collusion in the Negotiable Certificates of Deposit Market in Korea: A Discriminant Analysis

Jiyoung Lee, Jung Jae Kim and Jinook Jeong

Asian Economic Journal, 2022, vol. 36, issue 2, 203-223

Abstract: This paper econometrically evaluates if collusion actually occurred in the negotiable certificates of deposit (CD) market during the period of Korea Fair Trade Commission's (KFTC) investigation. We propose a general mixture regression model to discriminate the collusion period from the competitive period. We apply our method to Korean CD market data from 1 January 2009 to 23 May 2019 and forecast the probability of collusion for each day. We find that only a small portion—163 days out of 2579 days—of the whole sample is discriminated as a possible collusion. We also find that the banks did not issue the CD on almost all dates discriminated as colluded in our empirical results. Our findings imply a strong possibility that the stickiness of the CD rates was induced by the depressed CD market conditions rather than collusion.

Date: 2022
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