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The information content of stress test announcements

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  • Guerrieri, Luca
  • Modugno, Michele

Abstract

We exploit institutional features of the U.S. bank 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.

Suggested Citation

  • Guerrieri, Luca & Modugno, Michele, 2024. "The information content of stress test announcements," Journal of Banking & Finance, Elsevier, vol. 160(C).
    • Handle: RePEc:eee:jbfina:v:160:y:2024:i:c:s0378426624000074
    DOI: 10.1016/j.jbankfin.2024.107087
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    References listed on IDEAS

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    8. Mr. Maria Soledad Martinez Peria & Mr. Giovanni Majnoni & Mr. Matthew T Jones & Mr. Winfrid Blaschke, 2001. "Stress Testing of Financial Systems: An Overview of Issues, Methodologies, and FSAP Experiences," IMF Working Papers 2001/088, International Monetary Fund.
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    Cited by:

    1. Paul Glasserman & Mike Li, 2022. "Should Bank Stress Tests Be Fair?," Papers 2207.13319, arXiv.org, revised May 2023.
    2. Durrani, Agha & Ongena, Steven & Ponte Marques, Aurea, 2022. "The certification role of the EU-wide stress testing exercises in the stock market. What can we learn from the stress tests (2014-2021)?," Working Paper Series 2711, European Central Bank.

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    More about this item

    Keywords

    Stress tests; Event study; Banks; Overnight stock returns; CDS spreads;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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