An Empirical Assessment of Collusion in the Negotiable Certificates of Deposit Market in Korea: A Discriminant Analysis

Abstract

This paper econometrically evaluates if collusion actually occurred in the negotiable certificates of deposit (CD) market during the period of Korea Fair Trade Commission's (KFTC) investigation. We propose a general mixture regression model to discriminate the collusion period from the competitive period. We apply our method to Korean CD market data from 1 January 2009 to 23 May 2019 and forecast the probability of collusion for each day. We find that only a small portion—163 days out of 2579 days—of the whole sample is discriminated as a possible collusion. We also find that the banks did not issue the CD on almost all dates discriminated as colluded in our empirical results. Our findings imply a strong possibility that the stickiness of the CD rates was induced by the depressed CD market conditions rather than collusion.