| Abstract: | We investigate whether the “stress test,” the extraordinary examination of the 19 largest U.S. bank holding companies conducted by federal bank supervisors in 2009, produced useful information for the market. Using standard event study techniques, we find that the market had largely deciphered on its own which banks would have capital gaps before the stress test results were revealed, but that the market was informed by the size of the gap; given our proxy for the expected gap, banks with larger capital gaps experienced more negative abnormal returns. Our findings are consistent with the view that the stress tests produced valuable information about banks. |
