Asset Pricing of Financial Institutions: The Cross-Section of Expected Stock Returns in the Property/Liability Insurance Industry

Item Type Monograph (Working Paper)
Abstract

Insurance companies are important financial institutions exposed to natural and man-made disasters. We conduct a comprehensive examination of existing asset pricing models in the US insurance universe (1988-2013) and propose an insurance-specific asset pricing model. We find that extant asset pricing models fail to explain the cross-section of insurance stock returns. Instead, we provide evidence that the factors of the insurance-specific model (book-to-market ratio, short-term reversal, illiquidity, and cashflow volatility) are priced in the cross-section of property/liability insurance stocks. Our model takes into account both insurance-specific anomalies primarily related to the insurance business cycle and externalities imposed by catastrophe risk.

Authors Ben Ammar, Semir; Eling, Martin & Milidonis, Andreas
Language English
Keywords Asset Pricing; Insurance Stocks; Multifactor Models; Anomalies; Cross-Section; Risk Factors
Subjects business studies
HSG Classification contribution to scientific community
Refereed No
Date 2015
Publisher SoF - HSG
Place of Publication St. Gallen
Series Name School of Finance Working Paper Series
Number 2015/16
Depositing User Prof. Dr. Martin Eling
Date Deposited 20 Aug 2015 16:52
Last Modified 23 Aug 2016 11:22
URI: https://www.alexandria.unisg.ch/publications/243474

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Ben Ammar, Semir; Eling, Martin & Milidonis, Andreas: Asset Pricing of Financial Institutions: The Cross-Section of Expected Stock Returns in the Property/Liability Insurance Industry. School of Finance Working Paper Series, 2015, 2015/16.

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https://www.alexandria.unisg.ch/id/eprint/243474
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