Olav Syrstad

Journal of Empirical Finance 89 s. 1-13 Doi: https://doi.org/10.1016/j.jempfin.2026.101778

We use the “last days of LIBOR,” the period leading up to the final publication of the London Interbank Offered Rate (LIBOR), to study how financial markets adapt to changes imposed by regulators. Focusing on interest rate derivatives, we find that regulatory changes that alter contractual cash flows are quickly reflected in prices. Prices initially overreact, with the response extending to contracts whose cash flows are unaffected, consistent with fire sales by levered investors. Regulatory surprises also have persistent effects, with market prices implying a higher perceived probability of further policy changes. Our findings provide evidence on how markets respond to policy interventions.

Journal of Financial Economics 164 Doi: https://doi.org/10.1016/j.jfineco.2024.103989

The transition from London Interbank Offered Rate (LIBOR) to Secured Overnight Financing Rate (SOFR) affects the reference rate of floating-rate debt worth trillions of dollars. We provide the first evidence highlighting a benefit of the benchmark transition for debt markets. Focusing on the market for dollar-denominated floating rate notes (FRNs), we compare the yield spreads of FRNs linked to LIBOR and SOFR, issued by the same entity during the same month. After adjusting for the maturity-matched spreads from derivatives markets, we find significantly lower spreads for SOFR-linked FRNs. We link this SOFR discount to the enhanced price stability of SOFR-linked FRNs.

Journal of Financial Economics 146(1) s. 119-142 Doi: https://doi.org/10.1016/j.jfineco.2022.07.004

The Review of financial studies 35(11) s. 5185-5227 Doi: https://doi.org/10.1093/rfs/hhac026

To understand deviations from covered interest parity (CIP), it is crucial to account for heterogeneity in funding costs across both banks and currency areas. For most market participants, the no-arbitrage relation holds fairly well when implemented using marginal funding costs and risk-free investment instruments. However, a few high-rated banks do enjoy CIP-arbitrage opportunities. Dealers avert inventory imbalances stemming from lower-rated banks' usage of FX swaps to obtain dollar funding by inducing opposite (arbitrage) flows from high-rated banks. Arbitrage trades are difficult to scale, however, because funding costs increase as soon as arbitrageurs increase positions.

Journal of Financial Economics 141(2) s. 783-801 Doi: https://doi.org/10.1016/j.jfineco.2021.04.017

MFA 2026 Annual Meeting

IFABS 2024 Shanghai Conference