The dark side of stress tests : Negative effects of information disclosure

Goncharenko, Roman and Hledik, Juraj and Pinto, Roberto (2018) The dark side of stress tests : Negative effects of information disclosure. Journal of Financial Stability, 37. pp. 49-59. ISSN 1572-3089

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Abstract

This paper studies the effect of information disclosure on banks’ portfolio risk. We cast a simple banking system into a general equilibrium model with trading frictions. We find that the information disclosure lowers the expected risk-adjusted profits for a non-negligible fraction of banks. The magnitude of this effect depends on the structure of the banking system and, alarmingly, it is more pronounced for systemically important institutions. We connect these theoretical findings to the stress test procedure, where bank information is disclosed by the regulator. The 2011 and 2014 stress tests are used in an empirical study to further support our theoretical results.

Item Type:

Journal Article

Journal or Publication Title:

Journal of Financial Stability

Additional Information:

This is the author’s version of a work that was accepted for publication in Journal of Financial Stability. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Financial Stability, 37, 2018 DOI: 10.1016/j.jfs.2018.05.003

Uncontrolled Keywords:

/dk/atira/pure/subjectarea/asjc/2000/2003

Subjects:

?? information disclosuregeneral equilibriumsystemic riskfinanceeconomics, econometrics and finance(all) ??

Departments:

Lancaster University Management School > Accounting & Finance

ID Code:

128854

Deposited By:

ep_importer_pure

Deposited On:

06 Nov 2018 11:36

Refereed?:

Yes

Published?:

Published

Last Modified:

26 Oct 2024 00:19

URI:

https://eprints.lancs.ac.uk/id/eprint/128854