Market indicators, bank fragility, and indirect market discipline

Reint Gropp, Jukka M. Vesala and Giuseppe Vulpes

Economic Policy Review, 2004, issue Sep, No v.10 no.2, 53-62

Abstract: As a theoretical matter, signals from the bond and equity markets satisfy minimal requirements for a useful indicator. Using option pricing formulas, it is shown that a distance to default measure, based on equity market value and equity volatility, increases with the market value of bank assets and decreases with bank leverage and equity volatility.

Keywords: Bank profits; Bank stocks; Banks and banking - Accounting; Bank supervision (search for similar items in EconPapers)
Date: 2004
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Working Paper: Market Indicators, Bank Fragility, and Indirect Market Discipline (2004)
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