Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130652
Authors: 
Flannery, Mark
Hirtle, Beverly J.
Kovner, Anna
Year of Publication: 
2015
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 744
Abstract: 
We find evidence that the Federal Reserve stress tests (CCAR and DFAST) produce information about the stress-tested firms as well as other, non-stress-tested banking companies. Although standard event studies do not always show abnormal returns for the stress-tested sample on average, we argue that such tests are ill-suited for this sort of information event. Using a different empirical approach, we show that around stress test announcement dates, the absolute value of the cumulative abnormal returns (ARof stress-tested bank holding companies averages almost 3 percent. Cumulative abnormal trading volumes are more than 1 percentage point higher than a market model would predict. Absolute value abnormal returns and volumes are higher for more levered and riskier firms. We explore several theoretical hypotheses outlined in Goldstein and Sapra (2014) but find no evidence of negative welfare costs associated with the disclosure of stress test results.
Subjects: 
stress test
bank capital
event study
JEL: 
G14
G21
G28
Document Type: 
Working Paper

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