How Did Markets React to Stress Tests?
IMF Working Papers, April 1, 2015
Source details
- Canonical URL
- How Did Markets React to Stress Tests?
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Bibliographic details
- Authors: Bertrand Candelon, Amadou N Sy
- Published: April 1, 2015
- Series: IMF Working Papers
Summary and main findings
- Study uses event study methods to compare market reactions to U.S. and EU-wide stress tests performed from 2009 to 2013.
- Typical outcome: stress tests have a positive impact on stressed banks’ returns.
- 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.
- Comparative insight: 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.
Subject areas and keywords
- Subject: Banking; Capital adequacy requirements; Financial regulation and supervision; Financial sector policy and analysis; Macroprudential stress testing; Stress testing
- Keywords: abnormal returns; bank; Capital adequacy requirements; EU 2010; EU bank; EU capital exercise; EU capitalization exercise; EU entity; EU exercise; EU recapitalization; EU recapitalization exercise; Europe; financial stability; macroprudential; Macroprudential stress testing; market; recapitalization exercise; Stress testing; stress tests; WP