Systemic Risk and the Interconnectedness between Banks and Insurers: An Econometric Analysis

30 Pages Posted: 20 Aug 2014

See all articles by J David Cummins

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: September 2014

Abstract

This article uses daily market value data on credit default swap spreads and intraday stock prices to measure systemic risk in the insurance sector. Using the systemic risk measure, we examine the interconnectedness between banks and insurers with Granger causality tests. Based on linear and nonlinear 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.

Suggested Citation

Cummins, J. David and Viswanathan, Krupa S. and Weiss, Mary A., Systemic Risk and the Interconnectedness between Banks and Insurers: An Econometric Analysis (September 2014). Journal of Risk and Insurance, Vol. 81, Issue 3, pp. 623-652, 2014. Available at SSRN: https://ssrn.com/abstract=2483538 or http://dx.doi.org/10.1111/j.1539-6975.2012.01503.x

J. David Cummins

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

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