Volcker Rule: Liquidity, Systemic Risk, and Financial Reporting Quality

49 Pages Posted: 16 Dec 2014

See all articles by Fayez A. Elayan

Fayez A. Elayan

Brock University-Goodman School of Business

Rafet Atkas

Ankara Yildirim Beyazit University

Kareen Brown

Brock University

Parunchana Pacharn

Brock University

Date Written: December 14, 2014

Abstract

We investigate whether the market perceives the Volcker Rule as the right prescription for its stated objectives. Using a large and inclusive sample, we assess the market’s perception of the rule and its effectiveness using both the equity and credit default swap (CDS) market responses to the announcement of the rule. Our results show that the equity market response to the Volcker Rule announcement is positive while the credit default swap market response is negative, suggesting that the capital markets perceive the Volcker Rule as a positive regulatory measure. We conduct further analyses to determine whether or not there is a different market reaction based on systemic risk, liquidity, level of proprietary trading, and financial reporting quality. We find that banks with higher systemic risk, higher levels of proprietary trading, higher levels of illiquidity, and worse financial reporting quality are more likely to be negatively impacted by the Volcker Rule. We also examine banks’ characteristics before and after the announcement of the rule and find evidence that indicate a positive impact of the Volcker Rule.

Keywords: Volcker Rule, systemic risk, proprietary trading, liquidity

JEL Classification: G21, G28, M41, M48

Suggested Citation

Elayan, Fayez A. and Atkas, Rafet and Brown, Kareen and Pacharn, Parunchana, Volcker Rule: Liquidity, Systemic Risk, and Financial Reporting Quality (December 14, 2014). 2015 Canadian Academic Accounting Association (CAAA) Annual Conference, Available at SSRN: https://ssrn.com/abstract=2538263

Fayez A. Elayan

Brock University-Goodman School of Business ( email )

1812 Sir Issac Brock Way
St. Catharines, Ontario L2S 3A1
Canada
905-688-5550 (Phone)
905-688-9779 (Fax)

HOME PAGE: http://www.brocku.ca

Rafet Atkas

Ankara Yildirim Beyazit University ( email )

Cicek St. No 1 Ulus
Sciences Yildirim Beyazit University
Ankara, 06500
Turkey

Kareen Brown (Contact Author)

Brock University ( email )

500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada

Parunchana Pacharn

Brock University ( email )

500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada

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