The Information Content of Stress Test Announcements

20 Pages Posted: 14 Jun 2021 Last revised: 30 Jun 2021

See all articles by Luca Guerrieri

Luca Guerrieri

Board of Governors of the Federal Reserve System

Michele Modugno

Board of Governors of the Federal Reserve System

Date Written: February, 2021

Abstract

We exploit institutional features of the U.S. banking stress tests to disentangle different types of information garnered by market participants when the stress test results are released. By examining the reaction of different asset prices, we find evidence that market participants value the stress test announcements not only for the information on possible future capital distributions but also for the signals about bank resilience. These results back the use of stress tests by central banks to inform the broader public about the soundness of the banking system.

JEL Classification: E58, G21

Suggested Citation

Guerrieri, Luca and Modugno, Michele, The Information Content of Stress Test Announcements (February, 2021). FEDS Working Paper No. 2021-012, Available at SSRN: https://ssrn.com/abstract=3865409 or http://dx.doi.org/10.17016/FEDS.2021.012

Luca Guerrieri (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2550 (Phone)

Michele Modugno

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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