Market Risk, Interest Rate Risk, and Interdependencies in Insurer Stock Returns: A System-GARCH Model

25 Pages Posted: 29 Jun 2006 Last revised: 20 Apr 2014

James M. Carson

University of Georgia

Elyas Elyasiani

Temple University - Department of Finance

Iqbal Mansur

Widener University - School of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: January 5, 2008

Abstract

We examine market, interest rate risk, and interdependencies in returns and return volatilities across three insurer segments within a System-GARCH framework. Three main results are obtained: market risk is greatest for accident & health (A&H) insurers, followed by life (Life) and property & casualty (P&C) insurers, interest rate sensitivity is negative and greatest for Life insurers, and interdependencies in returns are significant with the magnitude being strongest between P&C and A&H insurers and weakest between Life insurers and insurers from the other segments. The implication is that greatest diversification benefits arise between Life and the other segments of the insurance industry. Market and interest rate risk for diversified firms are smaller than for non-diversified firms for both product and geographic diversification.

Keywords: Insurance, Stock Returns, Interest Rates, Diversification, System-GARCH

JEL Classification: G22, G34, K23, L11

Suggested Citation

Carson, James M. and Elyasiani, Elyas and Mansur, Iqbal, Market Risk, Interest Rate Risk, and Interdependencies in Insurer Stock Returns: A System-GARCH Model (January 5, 2008). Journal of Risk and Insurance, Vol. 75, No. 4, pp. 873-891, December 2008. Available at SSRN: https://ssrn.com/abstract=912068 or http://dx.doi.org/10.2139/ssrn.912068

James M. Carson (Contact Author)

University of Georgia ( email )

Athens, GA 30602-6254
United States

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)

Iqbal Mansur

Widener University - School of Business Administration ( email )

3800 Vartan Way
PO Box 69381
Harrisburg, PA 17106-9381
United States

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