The Impact of Regulatory Stress Testing on Bank's Equity and CDS Performance

Item Type Journal paper
Abstract Abstract This paper investigates the impact of stress testing results on bank's equity and CDS performance using a large sample of ten tests from the US CCAR and the European EBA regimes in the time period between 2010 and 2017. 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. Interestingly, we also document strong market reactions at the announcement date of the stress tests. A bank’s asset quality and its return on equity at the time of the announcement are significant predictors of the pass/fail outcome of a bank.
Authors Ahnert, Lukas; Vogt, Pascal; Vonhoff, Volker & Weigert, Florian
Language English
Keywords Banks, Stress Testing, Equity Performance, CDS Performance
Subjects finance
HSG Classification contribution to scientific community
HSG Profile Area SOF - System-wide Risk in the Financial System
Refereed No
Date 17 May 2018
Publisher SoF-HSG
Number of Pages 36
Depositing User Marion Stadelhofer
Date Deposited 30 May 2018 07:36
Last Modified 20 Jul 2022 17:35
URI: https://www.alexandria.unisg.ch/publications/254307

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Ahnert, Lukas; Vogt, Pascal; Vonhoff, Volker & Weigert, Florian (2018) The Impact of Regulatory Stress Testing on Bank's Equity and CDS Performance.

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https://www.alexandria.unisg.ch/id/eprint/254307
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