Market Reaction to Regulatory Action in the Insurance Industry: The Case of Contingent Commission

22 Pages Posted: 10 May 2010

See all articles by Jiang Cheng

Jiang Cheng

Shanghai Jiao Tong University (SJTU)

Elyas Elyasiani

Temple University - Department of Finance

Tzu-Ting Lin

Temple University

Abstract

We examine the market's reaction to New York Attorney General Eliot Spitzer's civil suit against mega-broker Marsh for bid rigging and inappropriate use of contingent commissions within a generalized autoregressive conditionally heteroskedastic (GARCH) framework. Effects on the stock returns of insurance brokers and insurers are tested. The findings are: (1) GARCH effects are significant in modeling broker/insurer returns; (2) the suit generated negative effects on the brokerage industry and individual brokers, suggesting that contagion dominates competitive effects; (3) spillover effects from the brokerage sector to insurance business are significant and mostly negative, demonstrating industry integration; and (4) information-based contagion is supported, as opposed to the pure-panic contagion.

Suggested Citation

Cheng, Jiang and Elyasiani, Elyas and Lin, Tzu-Ting, Market Reaction to Regulatory Action in the Insurance Industry: The Case of Contingent Commission. Journal of Risk and Insurance, Vol. 77, Issue 2, pp. 347-368, June 2010, Available at SSRN: https://ssrn.com/abstract=1600999 or http://dx.doi.org/10.1111/j.1539-6975.2009.01327.x

Jiang Cheng

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

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)

Tzu-Ting Lin

Temple University ( email )

Philadelphia, PA 19122
United States

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