Do CDS Maturities Matter in the Evaluation of the Information Content of Regulatory Banking Stress Tests? Evidence from European and US Stress Tests

Agbodji Amavi S. S., Emmanuelle Nys and Alain Sauviat ()
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Agbodji Amavi S. S.: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges
Alain Sauviat: LAPE, Université de Limoges

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Abstract: This paper questions the relevance of using only the 5-year maturity CDS spreads in the examination of the CDS market response to the disclosure of regulatory stress test results. Do the 5-year CDS contracts reflect all the relevant information on the response of the CDS market? Indeed, since a stress testing exercise measures tested banks' risk at different horizons, we suspect a difference in the market response depending on the horizons. Our empirical study shows that following the disclosure of stress tests' results, the information content provided by the different maturities differs. Therefore, simply using 5-year maturity CDS to assess banking risk is not sufficient.

Date: 2021
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Published in Revue Economique, 2021, 72 (65-102)

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Related works:
Journal Article: Do CDS Maturities Matter in the Evaluation of the Information Content of Regulatory Banking Stress Tests? Evidence from European and US Stress Tests (2021)
Working Paper: Do CDS maturities matter in the evaluation of the information content of regulatory banking stress tests? Evidence from European and US stress tests (2021)
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