Federal Reserve System

About: Federal Reserve System is a other organization based out in Washington D.C., District of Columbia, United States. It is known for research contribution in the topics: Monetary policy & Inflation. The organization has 2373 authors who have published 10301 publications receiving 511979 citations.

The impact of underwriting and dealing on bank returns and risks

Abstract: This study uses portfolio theory to investigate empirically the potential for diversification gains from expanded bank securities powers. Diversification potential is examined using microeconomic data on returns to existing bank securities and non-securities activities over 1976 through 1985. Both the mean and standard deviation of returns to securities activities are found to be greater than those of non-securities activities. Some potential for diversification gains is found, although this appears to be quite limited. Experiments designed to estimate the effect of using industry and time aggregated data are performed.

The Information Content of Bank Examinations

Abstract: We identify three types of information from bank examinations—“auditing information” from verifying the honesty and accuracy of the bank's books, “regulatory discipline information” about the treatment of the bank by regulators, and “private information” about bank condition. We estimate these information effects by comparing the cumulative abnormal market returns associated with examinations in which the CAMEL rating remained unchanged, improved, and worsened. All three information effects are found to be greater for banks entering the examination process with unsatisfactory ratings from prior examinations. The only consistently strong effect found is that examination downgrades appear to reveal unfavorable private information about bank condition. The evidence also suggests that the information may reach the market in part through loan quality data released in quarterly financial statements.

Markov Regime Switching and Unit-Root Tests

Abstract: We investigate the power and size performance of unit-root tests when the data undergo Markov regime switching. All tests, including those robust to a single break in trend growth rate, have low power against a process with a Markov-switching trend. Under the null hypothesis, we find that previously documented size distortions in Dickey–Fuller-type tests caused by a single break in trend growth rate or variance do not generalize to most parameterizations of Markov switching in trend or variance. However, Markov switching in variance can lead to overrejection in tests allowing for a single break the level of trend.