On the informative value of the EU-wide stress tests and the determinants of banks’ stock return reactions
Dimitris Georgoutsos and
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G. Moratis: Athens University of Economics and Business
Empirica, 2021, vol. 48, issue 4, No 6, 977-1008
Abstract We examine the informative value of the 2016 and 2018 supervisory EU stress tests on the basis of bank stocks and Credit Default Swaps’ abnormal returns behavior. Our conclusions are based on results from an event study analysis and from regressions on the determinants of bank stocks’ abnormal returns. The robustness of our results is checked by applying our testing methodology on abnormal returns generated from both a single factor and a five factor Fama–French models. We conclude that the 2018 stress test has been comparatively more informative for investors but only for a sub-group of banks based on sovereign debt-ridden and non-Eurozone countries. The equity Tier I, leverage and profitability ratios are important determinants of abnormal bank stock returns but only for the same sub-group of banks. Non-linear reactions highlight the fact that investors assign varying degrees of importance on the information they get from the stress tested financial ratios. Overall, our results may substantiate an argument that the recent EU stress tests have been calibrated towards revealing the weaknesses of the banking sector of peripheral Eurozone and non-Eurozone countries.
Keywords: EBA stress tests; Event study analysis; Factor models; Quantile regression analysis (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
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