Opaque banks, price discovery, and financial instability

Jeffrey S. Jones, Wayne Y. Lee and Timothy J. Yeager

Journal of Financial Intermediation, 2012, vol. 21, issue 3, 383-408

Abstract: Opacity fosters price contagion that exacerbates the speculative cycles of bubbles and crashes that create financial instability. We find that banks with larger investments in opaque assets benefitted more from intra-industry revaluations associated with announcements of mergers in the period 2000–2006. The findings are robust to controls for competitive effects, spillover effects from higher likelihood of takeover, changes in real estate prices, and interest rates. Non-merger banks that gained most from merger activities also experienced the largest price declines during the subsequent 2007–2008 financial crisis.

Keywords: Banks; Opacity; Merger; Intra-industry revaluation; Financial crisis (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (53)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:21:y:2012:i:3:p:383-408

DOI: 10.1016/j.jfi.2012.01.004

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