The Information Content of Stress Test Announcements
20 Pages Posted: 14 Jun 2021 Last revised: 30 Jun 2021
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The Information Content of Stress Test Announcements
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: Suggested Citation