Market indicators, bank fragility, and indirect market discipline
As a theoretical matter, signals from the bond and equity markets satisfy minimal requirements for a useful indicator. Using option pricing formulas, it is shown that a distance to default measure, based on equity market value and equity volatility, increases with the market value of bank assets and decreases with bank leverage and equity volatility.
Volume (Year): (2004)
Issue (Month): Sep ()
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- Reint Gropp & Jukka M. Vesala & Giuseppe Vulpes, 2002.
"Equity and bond market signals as leading indicators of bank fragility,"
Conference Series ; [Proceedings],
Federal Reserve Bank of Boston.
- Gropp, Reint & Vesala, Jukka & Vulpes, Giuseppe, 2006. "Equity and Bond Market Signals as Leading Indicators of Bank Fragility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 399-428, March.
- Gropp, Reint & Vesala, Jukka & Vulpes, Giuseppe, 2002. "Equity and bond market signals as leading indicators of bank fragility," Working Paper Series 0150, European Central Bank.
- Douglas D. Evanoff & Larry D. Wall, 2001.
"Sub-debt yield spreads as bank risk measures,"
FRB Atlanta Working Paper
2001-11, Federal Reserve Bank of Atlanta.
- Yaacov Z. Bergman & Bruce D. Grundy & Zvi Wiener, .
"General Properties of Option Prices (Revision of 11-95) (Reprint 058),"
Rodney L. White Center for Financial Research Working Papers
01-96, Wharton School Rodney L. White Center for Financial Research.
- Yaacov Z. Bergman & Bruce D. Grundy & Zvi Wiener, . "General Properties of Option Prices (Revision of 11-95) (Reprint 058)," Rodney L. White Center for Financial Research Working Papers 1-96, Wharton School Rodney L. White Center for Financial Research.
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- anonymous, 1999. "Using subordinated debt as an instrument of market discipline," Staff Studies 172, Board of Governors of the Federal Reserve System (U.S.).
- Diana Hancock & Myron Kwast, 2001. "Using Subordinated Debt to Monitor Bank Holding Companies: Is it Feasible?," Journal of Financial Services Research, Springer, vol. 20(2), pages 147-187, October.
- Bongini, Paola & Laeven, Luc & Majnoni, Giovanni, 2002. "How good is the market at assessing bank fragility? A horse race between different indicators," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 1011-1028, May.
- Robert R. Bliss, 2000. "The pitfalls in inferring risk from financial market data," Working Paper Series WP-00-24, Federal Reserve Bank of Chicago.
- Reint Gropp & Anthony J. Richards, 2001.
"Rating Agency Actions and the Pricing of Debt and Equity of European Banks: What Can we Infer About Private Sector Monitoring of Bank Soundness?,"
Banca Monte dei Paschi di Siena SpA, vol. 30(3), pages 373-398, November.
- Gropp, Reint & Richards, Anthony J., 2001. "Rating agency actions and the pricing of debt and equity of European banks: What can we infer about private sector monitoring of bank soundness?," Working Paper Series 0076, European Central Bank.
- Diana Hancock & Myron L. Kwast, 2001. "Using subordinated debt to monitor bank holding companies: is it feasible?," Finance and Economics Discussion Series 2001-22, Board of Governors of the Federal Reserve System (U.S.).
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- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Black, Fischer & Cox, John C, 1976. "Valuing Corporate Securities: Some Effects of Bond Indenture Provisions," Journal of Finance, American Finance Association, vol. 31(2), pages 351-67, May.
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