Incorporating equity market information into supervisory monitoring models
We examine whether equity market variables, such as stock returns and equity-based default probabilities, are useful to bank supervisors for assessing the condition of bank holding companies. Using an event study framework, we find that equity market variables anticipate supervisory ratings changes by up to four quarters and that the improvements in forecast accuracy arising from conditioning on equity market information are statistically significant. We develop an off-site monitoring model that easily combines supervisory and equity market information, and we find that the model's forecasts also anticipate supervisory ratings changes by several quarters. While the inclusion of equity market variables in the model does not improve forecast accuracy by much relative to simply using supervisory variables, we conclude that equity market information is useful for forecasting supervisory ratings and should be incorporated into supervisory monitoring models.
|Date of creation:||2001|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (415) 974-2000
Fax: (415) 974-3333
Web page: http://www.frbsf.org/Email:
More information through EDIRC
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:fip:fedfwp:2001-14. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diane Rosenberger)
If references are entirely missing, you can add them using this form.