Work

Stress Tests and Information Disclosure

Year: 2015

Type: report

Abstract: We study an optimal disclosure policy of a regulator that has information about banks (e.g., from conducting stress tests).We focus on the following tradeo¤: Disclosing some information may be necessary to prevent a market breakdown, but disclosing too much information destroys risk-sharing opportunities (the Hirshleifer e¤ect).We …nd that during normal times, no disclosure is optimal, but during bad times, some disclosure is necessary.We characterize its optimal form, e.g., under what conditions a simple cuto¤ rule is optimal.We relate our results to the Bayesian persuasion literature.

Source: Working paper

DOI: 10.21799/frbp.wp.2015.10

Authors: Ira Goldstein, Yaron Leitner

Institutions: Boston University, Federal Reserve, University of Arizona, University of California, Los Angeles, University of Calgary, Federal Reserve Bank of Philadelphia, Drexel University, University of Pennsylvania, Bank of Canada

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

Funder: Leonard N. Stern School of Business, New York University

OpenAlex ID: W4300825796

Cites: 35

Cited by: 17

Related to: 10