Banking Stress Test Effects on Returns and Risks

26 Pages Posted: 12 Apr 2014 Last revised: 21 Aug 2015

See all articles by Ekaterina Neretina

Ekaterina Neretina

University of Southern California - Marshall School of Business

Cenkhan Sahin

University of Groningen; Sveriges Riksbank

Jakob de Haan

De Nederlandsche Bank; University of Groningen

Date Written: April 10, 2015

Abstract

We investigate the effects of the announcement and the disclosure of the clarification, methodology, and outcomes of the US banking stress tests on banks' equity prices, credit risk, systematic risk, and systemic risk during the 2009-13 period. We find only weak evidence that stress tests after 2009 affected equity returns of large US banks. In contrast, CDS spreads declined in response to the disclosure of stress test results. We also find that bank systematic risk, as measured by betas, declined in some years after the publication of stress test results. Our evidence suggests that stress tests affect systemic risk.

Keywords: stress tests, bank equity returns, CDS spreads, bank betas, systemic risk

JEL Classification: G21, G28

Suggested Citation

Neretina, Ekaterina and Sahin, Cenkhan and Sahin, Cenkhan and de Haan, Jakob, Banking Stress Test Effects on Returns and Risks (April 10, 2015). De Nederlandsche Bank Working Paper No. 419, Available at SSRN: https://ssrn.com/abstract=2423720 or http://dx.doi.org/10.2139/ssrn.2423720

Ekaterina Neretina

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

Cenkhan Sahin (Contact Author)

University of Groningen

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

Jakob de Haan

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

University of Groningen

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Do you want regular updates from SSRN on Twitter?

Paper statistics

Downloads
522
Abstract Views
1,949
rank
74,163
PlumX Metrics