How Did Markets React to Stress Tests?
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
We use event study methods to compare the market reaction to U.S. and EU-wide stress tests performed from 2009 to 2013. Typically, stress tests have a positive impact on stressed banks’ returns. While the 2009 U.S. stress test had a large positive outcome, the impact of subsequent U.S. exercises decreased over time. The 2011 EU exercise is the only EU-wide stress test that resulted in a significant negative market reaction. Comparing past exercises suggests that the qualitative aspects of the governance of stress tests can matter more for stock market participants than technical elements, such as the level of the minimum capital adequacy threshold or the extent of data disclosure.
Series:
Working Paper No. 2015/075
Subject:
Banking Capital adequacy requirements Financial regulation and supervision Financial sector policy and analysis Macroprudential stress testing Stress testing
English
Publication Date:
April 1, 2015
ISBN/ISSN:
9781484315378/1018-5941
Stock No:
WPIEA2015075
Pages:
21
Please address any questions about this title to publications@imf.org