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Whether SORF Is a More Effective Substitute for LIBOR in the Market?
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Abstract
This paper examines the transition from LIBOR to SOFR and its impact on financial markets. LIBOR, once a key benchmark rate, has faced credibility issues, leading to the proposal of new benchmark rates like SOFR. The study investigates whether SOFR is a suitable LIBOR replacement and analyzes its effects on financial markets. Using statistical analysis, including covered interest rate parity theory and hypothesis testing, the study compares the accuracy of SOFR and LIBOR in determining the risk-free rate. The findings support the hypothesis that SOFR calculations more accurately reflect real market data compared to LIBOR. However, the study is limited in its focus on the US dollar market, which may limit its generalizability. Future research could explore the transition to alternative benchmark rates in other currencies and regions. Additionally, incorporating real-time data could provide more current insights into SOFR's effectiveness as a LIBOR replacement. Overall, the transition from LIBOR to SOFR represents a significant change in financial markets. Further research is needed to fully understand its implications. Addressing these limitations and exploring future research directions can enhance our understanding of the transition's impact on the global financial system.
Keywords
LIBOR (London Interbank Offered Rate), SOFR (Secured Overnight Financing Rate), Transition, Market Impact, Hypothesis Testing
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Cite this article
Zhang,H. (2024). Whether SORF Is a More Effective Substitute for LIBOR in the Market?. Advances in Economics, Management and Political Sciences,121,51-56.
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Volume title: Proceedings of the 8th International Conference on Economic Management and Green Development
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