Consumption-Based Asset Pricing in Insurance Markets: Yet Another Puzzle?

Item Type Journal paper
Abstract Although insurance is the typical textbook example for an asset that negatively correlates with consumption, the suitability of the classical consumption‐based asset pricing model with power utility to explain historical premiums and claims has not yet been tested. We fill this gap by fitting it to property–casualty market data for Australia, Italy, the Netherlands, the United States, and Germany. In doing so, we reveal yet another asset pricing anomaly. More specifically, the consumption‐based model implies even larger relative risk aversion coefficients in the insurance sectors than in the equity markets of the aforementioned countries. To solve this puzzle, we draw on the loss aversion and narrow framing approach by Barberis, Huang, and Santos (2001) as well as the second‐degree expectation dependence framework by Dionne, Li, and Okou (2015), with encouraging results.
Authors Braun, Alexander; Luca, Daliana & Schmeiser, Hato
Journal or Publication Title Journal of Risk and Insurance
Language English
Subjects business studies
HSG Classification contribution to scientific community
Refereed No
Date 1 September 2019
Publisher Blackwell
Place of Publication Malden, Mass. [u.a]
Series Name Working Papers on Risk Management and Insurance
Volume 86
Number 3
Page Range 629-661
ISSN 0022-4367
ISSN-Digital 1539-6975
Publisher DOI
Official URL
Depositing User Prof. Dr. Alexander Braun
Date Deposited 02 Nov 2015 10:24
Last Modified 25 Mar 2023 01:24


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Braun, Alexander; Luca, Daliana & Schmeiser, Hato (2019) Consumption-Based Asset Pricing in Insurance Markets: Yet Another Puzzle? Journal of Risk and Insurance, 86 (3). 629-661. ISSN 0022-4367

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