Bank Opacity - Empirical evidence from the CDS and equity market
Abstract: This paper examines to what extent the 2011 EU-wide bank stress test provided the market with new information. The intention is to conclude whether the European banking sector should be considered opaque or not. This is done by studying the credit default swap market and the equity market using event-study methodologies. Three different groups will be observed: i) the stress tested banks ii) a sample consisting of small banks and iii) a sample consisting of large banks. The empirical evidence suggests that the stress test was fairly informative to the market generally.. However, the results are much more distinct in the CDS market than in the equity market. These findings support the fact that the degree of bank opacity in the European region should be considered at least intermediate.
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