Crashes and Bank Opaqueness
Posted: 8 May 2010
Date Written: December 1, 2009
We investigate bank opaqueness by looking at the frequency of large, negative, market-adjusted returns (crashes). We analyze crashes on a sample of US stocks traded in the 1990-2007 period. Jin and Myers (2006) predict that opaqueness coupled with weak investors’ protection generate more frequent crashes. After controlling for size and leverage, banks (and insurance firms) generate more frequent crashes relative to other firms. We also find that weak investors’ protection, as measured by the Governance Index from Gompers, Ishii, and Metrick (2003) is associated with higher crash frequency. After controlling for investors’ protection, banks still exhibit more frequent crashes. We therefore conclude that banks are more opaque than non-banks.
Keywords: G20, G21, G28
JEL Classification: Banks, opaqueness, crashes
Suggested Citation: Suggested Citation