Systemic Risk and the Inter-Connectedness between Banks and Insurers: An Econometric Analysis

Journal of Risk and Insurance, Forthcoming

Fox School of Business Research Paper No. 14-023

46 Pages Posted: 3 Feb 2012 Last revised: 5 Sep 2014

See all articles by Hua Chen

Hua Chen

Temple University - Risk Management & Insurance & Actuarial Science

J David Cummins

Temple University - Risk Management & Insurance & Actuarial Science

Krupa S. Viswanathan

Temple University - Department of Risk, Insurance, and Healthcare

Mary A. Weiss

Temple University

Date Written: June 12, 2012

Abstract

This paper uses high frequency market value data on credit default swap spreads and intra-day stock prices to measure systemic risk in the insurance sector. Using the systemic risk measure, we examine the inter-connectedness between banks and insurers with Granger causality tests. Based on linear and non-linear causality tests, we find evidence of significant bidirectional causality between insurers and banks. However, after correcting for conditional heteroskedasticity, the impact of banks on insurers is stronger and of longer duration than the impact of insurers on banks. Stress tests confirm that banks create significant systemic risk for insurers but not vice versa.

Keywords: Insurance, banks, systemic risk, probability of default, Granger causality, inter-connectedness

JEL Classification: G01, G21, G22, G28

Suggested Citation

Chen, Hua and Cummins, J. David and Viswanathan, Krupa S. and Weiss, Mary A., Systemic Risk and the Inter-Connectedness between Banks and Insurers: An Econometric Analysis (June 12, 2012). Journal of Risk and Insurance, Forthcoming; Fox School of Business Research Paper No. 14-023. Available at SSRN: https://ssrn.com/abstract=1997437 or http://dx.doi.org/10.2139/ssrn.1997437

Hua Chen

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1801 Liacouras Walk, 625 Alter Hall
Philadelphia, PA 19122
United States
(215) 204-5905 (Phone)
(215) 204-4712 (Fax)

J. David Cummins (Contact Author)

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1801 Liacouras Walk.
Philadelphia, PA 19122
United States
215-204-8468 (Phone)
215-204-4712 (Fax)

Krupa S. Viswanathan

Temple University - Department of Risk, Insurance, and Healthcare ( email )

Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122
United States

Mary A. Weiss

Temple University ( email )

Fox School of Business and Management
1801 Liacouras Walk
Philadelphia, PA 19122
United States
215-204-1916 (Phone)

HOME PAGE: http://www.sbm.temple.edu/~rmidept/weiss.html

Register to save articles to
your library

Register

Paper statistics

Downloads
378
rank
76,170
Abstract Views
1,521
PlumX Metrics