Market Evidence on the Opaqueness of Banking Firms' Assets
48 Pages Posted: 11 Jul 2000
Date Written: January 2001
We assess the market microstructure properties of U.S. banking firms? equity, to determine whether they exhibit more or less evidence of asset opaqueness than similar-sized nonbanking firms. The evidence strongly indicates that large banks (traded on the NYSE) have very similar trading properties to their matched nonfinancial firms, but smaller banks (traded on NASDAQ) trade much less frequently despite having very similar spreads. We also find strong empirical support for the hypothesis that bank asset categories differ in their opacity. Analysis of IBES earnings forecasts indicates that banks assets are not opaque; they are simply boring. The implications for regulatory policy and future market microstructure research are discussed.
JEL Classification: G21, G18
Suggested Citation: Suggested Citation