2008
DOI: 10.1016/j.jbankfin.2007.11.002
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Interest rate clustering in UK financial services markets

Abstract: This study forwards an explanation and empirical investigation of price clustering in retail banking markets. It is proposed that price or interest rate clustering forms in retail markets as firms wish to maximise returns from customers, some of whom have difficulties in recalling and processing price information. This theory is developed and tested using a dataset of retail interest rates from the UK which enables interest rate clustering to be viewed in both lending and investment markets, and at different l… Show more

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Cited by 23 publications
(10 citation statements)
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“…2 The Law is also utilised in testing the quality of macroeconomic data (Nye and Moul 2007;Gonzales-Garcia and Pastor 2009;Brahler et al 2011;Michalski and Stoltz 2012). Other applications of Benford's Law in the broader economic literature are those of Diekmann (2007), Hales et al (2008), Judge and Schechter (2009), Ashton and Hudson (2008), and Abrantes-Metz et al (2011). 3 Performance matching procedures have been adopted to alleviate misspecification (e.g., Kothari et al 2005), but cause substantial reductions in test power and are only effective when the matching procedure employs the relevant omitted variable.…”
Section: Advantagesmentioning
confidence: 99%
“…2 The Law is also utilised in testing the quality of macroeconomic data (Nye and Moul 2007;Gonzales-Garcia and Pastor 2009;Brahler et al 2011;Michalski and Stoltz 2012). Other applications of Benford's Law in the broader economic literature are those of Diekmann (2007), Hales et al (2008), Judge and Schechter (2009), Ashton and Hudson (2008), and Abrantes-Metz et al (2011). 3 Performance matching procedures have been adopted to alleviate misspecification (e.g., Kothari et al 2005), but cause substantial reductions in test power and are only effective when the matching procedure employs the relevant omitted variable.…”
Section: Advantagesmentioning
confidence: 99%
“…The deposit account interest rate data and the number of deposit accounts offered by each building society in each year was constructed using data issued by the Moneyfacts magazine; this data has also been employed within regulatory assessments of the banking industry (Competition Commission 2002) and past academic work (Heffernan 2002;Ashton and Hudson 2008;Fuertes and Heffernan 2009). This data includes all short-term retail deposit accounts recorded for the sample building societies from January 1989 to December 2011.…”
Section: Datamentioning
confidence: 99%
“…Kahn, Pennacchi, and Sopranzetti (1999), for instance, provide a theoretical point of view and empirical evidence of bank deposit interest rate clustering. Based on a theoretical explanation of behavioral causes, Ashton and Hudson (2008) develop a model of retail banking markets and compare the observed digit distribution of interest rates at different levels of financial involvement with a random digit distribution. In this way, they indicate that firms set interest rates in a manner consistent with maximizing returns from customers.…”
Section: Related Literaturementioning
confidence: 99%