Short term stock market effects of the disclosure of the second European stress test resultsShort term stock market effects of the disclosure of the second European stress test results
Faculty of Applied Economics
Accountancy and Finance
2012 :, 2012
International Research Journal of Applied Finance. -
3(2012):3, 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.