Do Investors Value the Required Stress Tests of Financial Holding Companies?

Author

Brendan A. Colligan, University of ArkansasFollow

Date of Graduation

5-2016

Document Type

Thesis

Degree Name

Bachelor of Science in Business Administration

Degree Level

Undergraduate

Department

Finance

Advisor/Mentor

Acrey, James

Committee Member/Reader

Rennie, Craig

Abstract

This paper explores the value of disclosing stress test results to investors and market participants within the US financial system. Recently the Federal Reserve (“Fed”) expanded its required internal stress testing program, often referred to as the Dodd-Frank Act Stress Test (“DFAST”), to include bank holding companies (“BHCs”) with more than $10 billion in total assets. These BHCs were required to publicly disclose their results for the first time in June of 2015. Large BHCs are subject to another level of stress testing implemented by the Comprehensive Capital Analysis Review (“CCAR”). Large BHCs are defined as having more than $50 billion in total assets, and have been undergoing various stress tests since 2009. Key trends within the stress tests of CCAR banks may be a telling signal of how the results of DFAST banks will be received by market participants. Moving forward, more banks will become subject to these stress testing requirements as they grow both organically and acquisitively. This paper focuses on the market reactions to DFAST banks’ disclosures, using several techniques to measure this market reaction.

Citation

Colligan, B. A. (2016). Do Investors Value the Required Stress Tests of Financial Holding Companies?. Finance Undergraduate Honors Theses Retrieved from https://scholarworks.uark.edu/finnuht/27