Capturing the ‘true’ information content of supervisory announcements in Europe

Laivi Laidroo

The European Journal of Finance, 2022, vol. 28, issue 18, 1917-1939

Abstract: We assess the information content of supervisory announcements related to stress tests and other supervisory exercises in the EU for 2010–2018. Our results show that compared to abnormal returns the use of absolute abnormal returns provides superior possibilities for detecting significant information content in almost all supervisory announcements in the EU from 2010 to 2018. In line with expectations, absolute abnormal returns surrounding announcements of the stress tests’ final results remain greater than those for the pre-results. We also find that the ‘surprise' contained in the results of the stress test is an important determinant of the magnitude of the price reaction. Contrary to expectations, we find no clear signs of a significant decline in the information content of supervisory announcements over time. This indicates that, despite decreased uncertainty levels, equity investors have continued to value the efforts put into the stress tests and transparency exercises by supervisory authorities and systemically important banks.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:28:y:2022:i:18:p:1917-1939

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DOI: 10.1080/1351847X.2022.2029523

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