Market Evidence on the Opaqueness of Banking Firms' Assets

48 Pages Posted: 11 Jul 2000

See all articles by Mark J. Flannery

Mark J. Flannery

University of Florida - Department of Finance, Insurance and Real Estate

Simon H. Kwan

Federal Reserve Bank of San Francisco

Mahendrarajah Nimalendran

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: January 2001

Abstract

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

Flannery, Mark Jeffrey and Kwan, Simon H. and Nimalendran, Mahendrarajah, Market Evidence on the Opaqueness of Banking Firms' Assets (January 2001). Eleventh Annual Utah Winter Conference. Available at SSRN: https://ssrn.com/abstract=234988 or http://dx.doi.org/10.2139/ssrn.234988

Mark Jeffrey Flannery (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-3184 (Phone)
352-392-0103 (Fax)

Simon H. Kwan

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3190 (Phone)

Mahendrarajah Nimalendran

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9526 (Phone)
352-392-0301 (Fax)

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