What is the information value of bank's stress tests? An investigation using banks' bond split ratings

Moustapha Daouda Dala, Isabelle Distinguin () and Alain Sauviat ()
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Moustapha Daouda Dala: Epoka University, Department of Banking and Finance, Rruga Tirane-Rinas Km 12, 1032, Vore, Tirana, Albania
Isabelle Distinguin: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges
Alain Sauviat: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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Abstract: We study the informative value of stress tests by investigating the impact of the disclosure of their results on banks' bonds split ratings taken as a measure of bank opacity. We consider bonds jointly rated by Moody's and Standard & Poor's and issued by banks that participated to the European and US banks' stress tests. Our results suggest that the disclosure of stress results has mixed effect on split ratings. Our findings also suggest a frequent divergence of interpretation of the stress test results between the two rating agencies meaning that information would not be as relevant as hoped by regulators. Market players certainly could not extract an unambiguous signal from all the results disclosed by the stress tests.

Keywords: stress tests; credit rating; split rating; banks' opacity (search for similar items in EconPapers)
Date: 2020-02-12
New Economics Papers: this item is included in nep-eec, nep-fmk and nep-rmg
Note: View the original document on HAL open archive server: https://unilim.hal.science/hal-02475512v1
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