Staff Working Paper No. 792
By Richard D F Harris, Veselin Karadotchev, Rhiannon Sowerbutts and Evarist Stoja
We investigate the impact that the publication of the Bank of England’s Financial Stability Report (FSR) has on the stock returns and credit default swap spreads of UK financial institutions. Examining a sample of 73 UK-listed banks and other financial institutions, we find that publication of the FSR is, on average, associated with no abnormal returns. We extend our analysis to examine the extent to which policies and the sentiment in the FSR are predictable, which would explain the observed lack of abnormal returns. We find that both sentiment and announced policies are predictable. We also examine the extent to which the release of the FSR reduces information asymmetry in financial markets, but do not find strong evidence.