Previous studies have established that the failure of the hedge fund, Long Term Capital Management (LTCM), was associated with significant negative abnormal returns for a many U.S. banks especially around September 2, 1998 when LTCM announced its failure. This study attempts to examine whether bank value-at-risk (VaR) disclosures were used by investors to assess the potential trading loss that a bank could suffer at that time. This study examines whether there was any association between disclosed VaR and the magnitude of abnormal returns and trading volume surrounding the announcement date. The results indicate that there was no such association which suggests that investors did not use the VaR information to assess the potential trading losses of exposed banks. Banks that formed part of the LTCM bailout consortium and those with larger amounts of notional derivatives faced the largest negative reaction at the time of the failure announcement.

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reporting　disclosure　LTCM　value-relevance　
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VaR Methods——Risk Reporting