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Type | Scientific Publication In Electronic Form |
Scope | Discipline-based scholarship |
Title | The Certification Role of the EU-Wide Stress Testing Exercises in the Stock Market. What Can We Learn from the Stress Tests (2014-2021)? |
Organization Unit | |
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Place of Publication | Vienna |
Publisher | SUERF - The European Money and Finance Forum |
Series Name | SUERF Policy Brief 457 |
Date | 2022 |
Abstract Text | What is the impact of stress tests on bank stock prices? To answer this question we study the impact of the publication of the EU-wide stress tests in 2014, 2016, 2018, and 2021 on the first and second moment of equity returns. First, the effect of the disclosure of stress tests on (cumulative) excess/abnormal returns is studied through a one-factor market model. Second, both returns and volatility of bank stock prices changes upon the disclosure of stress tests are investigated through a structural GARCH model. Results suggest that the publication of stress tests provides new information to markets. Banks performing poorly in stress tests experience, on average, a reduction in returns and an increase in volatility, while the reverse holds true for banks performing well. Banks performing moderately have rather a small effect on both mean and variance process. These results indicate that the publication of stress tests improves price discrimination between ’good’ and ’bad’ banks, which can be interpreted as a certification role of the stress tests in the stock market. |
Free access at | Official URL |
Official URL | https://www.suerf.org/suer-policy-brief/55939/the-certification-role-of-the-eu-wide-stress-testing-exercises-in-the-stock-market-what-can-we-learn-from-the-stress-tests-2014-202 |
Other Identification Number | merlin-id:22955 |
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