The Cross-Section of Expected Stock Returns in the Property/Liability Insurance Industry

64 Pages Posted: 31 Jul 2015 Last revised: 26 Jun 2018

See all articles by Semir Ben Ammar

Semir Ben Ammar

University of St. Gallen; University of St. Gallen - School of Finance

Martin Eling

University of St. Gallen - Institute of Insurance Economics; University of Saint Gallen - School of Finance (SoF)

Andreas Milidonis

University of Cyprus - Department of Accounting and Finance

Date Written: June 26, 2018

Abstract

We conduct a comprehensive asset pricing analysis for the U.S. property/liability insurance industry using monthly data from 1988 to 2015. We find that state-of-the-art models such as the Fama and French (2015) five-factor model cannot explain the returns of property/liability insurance stocks in a satisfactory way. We adapt the model proposed by Adrian, Friedman, and Muir (2015) for financial institutions and define an insurance-specific five-factor asset pricing model (INS5), which can explain the cross-section of property/liability insurance-stock returns better than competing models. The priced factors are the market return, the book-to-market ratio, return on equity, short-term reversal, and the spread between the property/liability insurance sector and the market return.

Keywords: Asset Pricing; Insurance; Multifactor Models; APT; Risk Factors

JEL Classification: G12, G22

Suggested Citation

Ben Ammar, Semir and Eling, Martin and Milidonis, Andreas, The Cross-Section of Expected Stock Returns in the Property/Liability Insurance Industry (June 26, 2018). University of St.Gallen, School of Finance Research Paper No. 2015/16. Available at SSRN: https://ssrn.com/abstract=2637870 or http://dx.doi.org/10.2139/ssrn.2637870

Semir Ben Ammar (Contact Author)

University of St. Gallen ( email )

Dufourstrasse 50
St Gallen
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Martin Eling

University of St. Gallen - Institute of Insurance Economics ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

University of Saint Gallen - School of Finance (SoF) ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Andreas Milidonis

University of Cyprus - Department of Accounting and Finance ( email )

P.O. Box 20537
Nicosia CY-1678
Cyprus
+357 22 893 626 (Phone)

HOME PAGE: http://www.ucy.ac.cy/~amilidon/

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