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Do CDS Maturities Matter in the Evaluation of the Information Content of Regulatory Banking Stress Tests? Evidence from European and US Stress Tests

Author

Listed:
  • Agbodji Amavi S. S.

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Emmanuelle Nys

    (LAPE, Université de Limoges)

  • Alain Sauviat

    (LAPE, Université de Limoges)

Abstract

This paper questions the relevance of using only the 5-year maturity CDS spreads in the examination of the CDS market response to the disclosure of regulatory stress test results. Do the 5-year CDS contracts reflect all the relevant information on the response of the CDS market? Indeed, since a stress testing exercise measures tested banks' risk at different horizons, we suspect a difference in the market response depending on the horizons. Our empirical study shows that following the disclosure of stress tests' results, the information content provided by the different maturities differs. Therefore, simply using 5-year maturity CDS to assess banking risk is not sufficient.

Suggested Citation

  • Agbodji Amavi S. S. & Emmanuelle Nys & Alain Sauviat, 2021. "Do CDS Maturities Matter in the Evaluation of the Information Content of Regulatory Banking Stress Tests? Evidence from European and US Stress Tests," Post-Print hal-04715097, HAL.
    • Handle: RePEc:hal:journl:hal-04715097
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