Stress tests and information disclosure

Itay Goldstein and Yaron Leitner

No 13-26, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Superseded by Working Paper 15-10. We study an optimal disclosure policy of a regulator who has information about banks? ability to overcome future liquidity shocks. We focus on the following trade-off: Disclosing some information may be necessary to prevent a market breakdown, but disclosing too much information destroys risk-sharing opportunities (Hirshleifer effect). We find that during normal times, no disclosure is optimal, but during bad times, partial disclosure is optimal. We characterize the optimal form of this partial disclosure. We also relate our results to the debate on the disclosure of stress test results.

Keywords: Financial crises; Financial stability (search for similar items in EconPapers)
Pages: 57 pages
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-cba and nep-cta
Note: Superseded by WP 17-28
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:13-26

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