Cross‐Industry Product Diversification and Contagion in Risk and Return: The Case of Bank‐Insurance and Insurance‐Bank Takeovers
38 Pages Posted: 9 Aug 2016
Date Written: September 2016
We investigate the impact of domestic/international bancassurance deals on the risk‐return profiles of announcing and nonannouncing banks and insurers within a GARCH model. Bank‐insurance deals produce intra‐ and interindustry contagion in both risk and return, with larger deals producing greater contagion. Bidder banks and peers experience positive abnormal returns, with the effects on insurer peers being stronger than those on bank peers. Insurance‐bank deals produce insignificant excess returns for bidder and peer insurers and positive valuations for peer banks. Following the deal, the bank bidders' idiosyncratic (systematic) risk falls (increases), while insurance bidders exhibit a lower systematic risk and maintain their idiosyncratic risk.
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