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Published on 25 October 2024
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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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Whether SORF Is a More Effective Substitute for LIBOR in the Market?

Huahao Zhang *,1,
  • 1 Southern University of Science and Technology

* Author to whom correspondence should be addressed.

https://doi.org/10.54254/2754-1169/121/20242527

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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[3]. Indriawan, I., Jiao, F., & Tse, Y. (2022). Price discovery between forward-looking SOFR and LIBOR. Finance Research Letters, 44, 102797. https://doi.org/10.1016/j.frl.2022.102797

[4]. Heidorn, T., & Meier, R. (2024). US Dollar swaps after LIBOR (No. 235). Frankfurt School-Working Paper Series.

[5]. Fassas, A.P. (2021). Price discovery in US money market benchmarks: LIBOR vs. SOFR. Economics Letters, 205, 109882. https://doi.org/10.1016/j.econlet.2021.109882

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.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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About volume

Volume title: Proceedings of the 8th International Conference on Economic Management and Green Development

Conference website: https://2024.icemgd.org/
ISBN:978-1-83558-665-5(Print) / 978-1-83558-666-2(Online)
Conference date: 26 September 2024
Editor:Lukáš Vartiak
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.121
ISSN:2754-1169(Print) / 2754-1177(Online)

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