TY - JOUR T1 - Are the Federal Reserve’s Stress Test Results Predictable? JF - The Journal of Alternative Investments SP - 82 LP - 97 DO - 10.3905/jai.2016.18.4.082 VL - 18 IS - 4 AU - Paul Glasserman AU - Gowtham Tangirala Y1 - 2016/03/31 UR - https://pm-research.com/content/18/4/82.abstract N2 - Regulatory stress tests have become a key tool for setting bank capital levels. Publicly disclosed results for four rounds of stress tests suggest that as the stress testing process has evolved, its outcomes have become more predictable and therefore arguably less informative. In particular, projected stress losses in the 2013 and 2014 stress tests are nearly perfectly correlated for bank holding companies that participated in both rounds. The authors also compare projected losses across different scenarios used in the 2014 stress test and find surprisingly high correlations for outcomes grouped by bank or by loan category. Similar patterns apply to the 2015 results. The authors discuss the potential implications of these patterns for the further development and application of stress testing.TOPICS: Financial crises and financial market history, risk management, simulations ER -