Stress tests and information disclosure

  title={Stress tests and information disclosure},
  author={Itay Goldstein and Yaron Leitner},
  journal={J. Economic Theory},
We study an optimal disclosure policy of a regulator who has information about banks’ability to overcome future liquidity shocks. We focus on the following tradeoff: Disclosing some information may be necessary to prevent a market breakdown, but disclosing too much information destroys risk-sharing opportunities (Hirshleifer effect). We find that during normal times, no disclosure is optimal, but during bad times, partial disclosure is optimal. We characterize the optimal form of this partial… CONTINUE READING
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