“Black Swans” before the “Black Swan” evidence from international LIBOR–OIS spreads

Eric Olson (), Scott Miller and Mark Wohar ()

Journal of International Money and Finance, 2012, vol. 31, issue 6, 1339-1357

Abstract: The LIBOR–OIS spread is a closely monitored indicator of the financial health of economy. Previous research has used this spread to identify and anticipate abrupt changes in financial markets. Taylor and Williams (2009) refer to the drastic increase in the US LIBOR–OIS spread on August 7th, 2007 as a “Black Swan” in the money market. In this paper, rather than rely on visual observations of “Black Swans” we estimate them using Bai and Perron’s (1998) procedure. We estimate structural breaks, Granger causality tests, and innovation accounting in international LIBOR–OIS spreads and a CDS index to better understand their dynamics during the recent crisis. Our results reveal that “Black Swans” appeared in smaller economies prior to that in large ones during the financial crisis. In addition, we find that only shocks to the US LIBOR–OIS spread has any statistically significant effects after 30 days.

Keywords: Credit default swaps; Structural breaks; Global financial crisis (search for similar items in EconPapers)
JEL-codes: C32 E44 E49 E50 F39 G01 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:31:y:2012:i:6:p:1339-1357

DOI: 10.1016/j.jimonfin.2012.02.004

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