Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/216819 
Year of Publication: 
2020
Series/Report no.: 
CFR Working Paper No. 20-03
Publisher: 
University of Cologne, Centre for Financial Research (CFR), Cologne
Abstract: 
This paper investigates the impact of stress testing results on bank's equity and CDS performance using a large sample of twelve tests from the US CCAR and the European EBA regimes in the time period from 2010 to 2018. We find that passing banks experience positive abnormal equity returns and tighter CDS spreads, while failing banks show strong drops in equity prices and widening CDS spreads. We also document strong market reactions at the announcement date of the stress tests. Although the institutional designs between US and European stress tests differ, we generally observe similar capital market consequences for both regimes. We complement existing studies by investigating the predictability of stress test outcomes and evaluating strategic options for affected banks and investors.
Subjects: 
Banks
Stress Testing
Equity Performance
CDS Performance
JEL: 
G00
G21
G28
Document Type: 
Working Paper

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