March Madness in Wall Street: (What) Does the Market Learn from Stress Tests?

Marcelo Fernandes, Deniz Igan and Marcelo Pinheiro

No 2015/271, IMF Working Papers from International Monetary Fund

Abstract: Annual stress tests have become a regular part of the supervisors’ toolkit following the global financial crisis. We investigate their capital market implications in the United States by looking at price and trade reactions, information asymmetry and uncertainty indicators, and bank activities. The evidence we present supports the notion that there is important new information in stress tests, especially at times of financial distress. Moreover, public disclosure seems to help reduce informational asymmetries. Importantly, public disclosure of stress test results (and methodology) does not seem to have reduced private incentives to generate information or to have led to distorted incentives.

Keywords: WP; bank; firm; result; abnormal returns; Stress testing; Capital requirements; Public disclosure; Information; stress test result; capital plan; DFAST exercise; CCAR capital; market reaction; results release; market participant; Federal Reserve's decision; Federal Reserve object; market functioning indicator; CCAR stress tests; Stocks; Global; North America; Europe (search for similar items in EconPapers)
Pages: 34
Date: 2015-12-23
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: March madness in Wall Street: (What) does the market learn from stress tests? (2020)
Working Paper: March Madness in Wall Street: (What) Does the Market Learn from Stress Tests? (2015)
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