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:	Article
Additional Information:	To see the final version of this paper please visit the publisher's website. Access to the published version requires a subscription. The original publication is available at http://dx.doi.org/10.1016/j.jfs.2018.05.003 .
Keywords:	Information disclosure, General Equilibrium, Systemic risk
Classification Codes:	JEL D50; D80; G21
Divisions:	Departments > Finance, Accounting and Statistics > Financial Research
Version of the Document:	Accepted for Publication
Variance from Published Version:	Typographical
Depositing User:	Roman Goncharenko
Date Deposited:	18 Jun 2018 12:04
Last Modified:	15 Jun 2020 09:02
Related URLs:	Publisher
FIDES Link:	https://bach.wu.ac.at/d/research/results/86345/
URI:	https://epub.wu.ac.at/id/eprint/6357

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