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Stock Market Assessment of Bank Risk: Evidence from the Maghreb Region

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  • Lassaâd Mbarek

    (Central Bank of Tunisia)

  • Dorra Mezzez Hmaied

Abstract

This paper examines the ability of stock market investors to monitor bank risk for a sample of listed banks in Tunisia and Morocco over the period 2003-2009. We construct various market-based risk measures derived from the market model as well as the distance-to-default derived from the structural model of credit risk. Using a panel data analysis, we show that market-based measures of risk are strongly associated to bank fundamental characteristics, especially capital and size. This finding has important implications for regulators as shareholders are able to assess a bank’s financial condition and hence exert effective discipline on the bank’s risk-taking behavior.

Suggested Citation

  • Lassaâd Mbarek & Dorra Mezzez Hmaied, 2012. "Stock Market Assessment of Bank Risk: Evidence from the Maghreb Region," Working Papers 679, Economic Research Forum, revised 2012.
    • Handle: RePEc:erg:wpaper:679
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