Bank opacity and the efficiency of stock prices

Benjamin Blau (), Tyler J. Brough and Todd Griffith

Journal of Banking & Finance, 2017, vol. 76, issue C, 32-47

Abstract: Prior research argues that the process of intermediation is opaque and produces uncertainty about the riskiness of banks, which may adversely affect the efficiency of bank stock prices. Using the Hou and Moskowitz (2005) measure of price delay, which captures the inefficiency of stock prices, we test for, and find evidence supporting the idea that opacity is positively associated with price delay. Bank stocks have markedly higher delay than similar non-bank stocks. This higher level of delay is driven, in part, by market-based measures of informational opacity as well as the asset composition of the bank's balance sheet. Combined, our findings suggest that bank opacity reduces the efficiency of financial markets.

Keywords: Opacity; Friction; Price delay; Market efficiency; Intermediation risk; Impulse response functions (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:76:y:2017:i:c:p:32-47

DOI: 10.1016/j.jbankfin.2016.11.026

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