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Interest rate clustering in UK financial services markets

Ashton, John K.; Hudson, Robert S.

Authors

John K. Ashton



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 levels of financial involvement. It is found that interest rate clustering occurs in a manner consistent with firms maximising returns from customers. These findings are viewed to be a key policy concern for financial regulators and firms concerned with consumer protection.

Journal Article Type Article
Publication Date 2008-07
Journal Journal Of Banking & Finance
Print ISSN 0378-4266
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 32
Issue 7
Pages 1393-1403
Institution Citation Ashton, J. K., & Hudson, R. S. (2008). Interest rate clustering in UK financial services markets. Journal of Banking and Finance, 32(7), 1393-1403. https://doi.org/10.1016/j.jbankfin.2007.11.002
DOI https://doi.org/10.1016/j.jbankfin.2007.11.002
Keywords Economics and Econometrics; Finance
Publisher URL https://www.sciencedirect.com/science/article/pii/S0378426607003548?via%3Dihub