Stress tests and information disclosure

Itay Goldstein and Yaron Leitner

No 15-10, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Supersedes Working Paper 13-26 . We study an optimal disclosure policy of a regulator that has information about banks? ability to overcome future liquidity shocks. We focus on the following tradeoff: Disclosing some information may be necessary to prevent a market breakdown, but disclosing too much information destroys risk-sharing opportunities (the 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 relate our results to the Bayesian persuasion literature and to the debate on disclosure of stress test results.

Keywords: Bayesian persuasion; Optimal disclosure; Stress tests (search for similar items in EconPapers)
Pages: 57 pages
Date: 2015-02-18
New Economics Papers: this item is included in nep-ban and nep-cba
Note: Superseded by WP 17-28
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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