Market Risk, Interest Rate Risk, and Interdependencies in Insurer Stock Returns: A System-GARCH Model

19 Pages Posted: 7 Nov 2008

See all articles by James M. Carson

James M. Carson

University of Georgia

Elyas Elyasiani

Temple University - Department of Finance

Iqbal Mansur

Widener University - School of Business Administration

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Abstract

We examine market risk, interest rate risk, and interdependencies in returns and return volatilities across three insurer segments within a System-GARCH framework. Three main results are obtained: market risk is greatest for accident and health (A&H) insurers, followed by life (Life) and property and casualty (P&C) insurers; interest rate sensitivity is negative and greatest for Life insurers; and interdependencies in returns are significant with the magnitude being strongest between P&C and A&H insurers. The implication is that greatest diversification benefits arise between Life and the other segments of the insurance industry. Market risk and interest rate risk for diversified firms are smaller than those for nondiversified firms for both product and geographic diversification.

Suggested Citation

Carson, James M. and Elyasiani, Elyas and Mansur, Iqbal, Market Risk, Interest Rate Risk, and Interdependencies in Insurer Stock Returns: A System-GARCH Model. Journal of Risk & Insurance, Vol. 75, Issue 4, pp. 873-891, December 2008, Available at SSRN: https://ssrn.com/abstract=1296889 or http://dx.doi.org/10.1111/j.1539-6975.2008.00289.x

James M. Carson (Contact Author)

University of Georgia ( email )

Athens, GA 30602-6254
United States

Elyas Elyasiani

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-5881 (Phone)
215-204-5698 (Fax)

Iqbal Mansur

Widener University - School of Business Administration ( email )

3800 Vartan Way
PO Box 69381
Harrisburg, PA 17106-9381
United States

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