March madness in Wall Street: (What) does the market learn from stress tests?

Annual stress tests have become a regular part of the supervisors’ toolkit following the global financial crisis. We investigate their market implications in the United States by looking at price and trade reactions as well as information asymmetry and uncertainty indicators around the tests, and ba...

Full description

Saved in:
Bibliographic Details
Published in:Journal of banking & finance 2020-03, Vol.112, p.105250, Article 105250
Main Authors: Fernandes, Marcelo, Igan, Deniz, Pinheiro, Marcelo
Format: Article
Language:English
Subjects:
Capital requirements
Information
Public disclosure
Stress testing
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Annual stress tests have become a regular part of the supervisors’ toolkit following the global financial crisis. We investigate their market implications in the United States by looking at price and trade reactions as well as information asymmetry and uncertainty indicators around the tests, and bank behavior after the tests. The evidence we present supports the notion that there is important new information in stress tests. This is particularly the case during crisis. Moreover, public disclosure appears not to adversely affect informational asymmetries and uncertainties. Importantly, public disclosure of stress test results (and methodology) does not seem to have reduced private incentives to generate information or to have led to distorted incentives.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2017.11.005