Short term stock market effects of the disclosure of the second European stress test results
Faculty of Applied Economics
International Research Journal of Applied Finance. - Place of publication unknown
, p. 376-394
University of Antwerp
Despite the criticisms raised in the financial press vis-à-vis the credibility of the second European stress test, the disclosure of the results brought a higher degree of transparency to the market regarding the risk exposures of major financial institutions/groups that were within the tests scope. It rewarded the shareholders with an average abnormal return of 4.68% on July 26, 2010. The cumulative abnormal return over the week after the announcement was 5.31%. The aim of stabilizing the financial system was only modestly achieved. Although cross-sectional volatility significantly decreased, the decline in the time series volatilities was less profound. To a large extent, the cumulative abnormal returns can be explained by the data disclosed by the CEBS. Results show that the market held a much more pessimistic view on the risk sensitivity of the institutions that were put at stress.