Capitalizing on Catastrophe: Short Selling Insurance Stocks Around Hurricanes Katrina and Rita
40 Pages Posted: 6 Feb 2007 Last revised: 5 Sep 2008
Date Written: February 14, 2008
Abstract
We examine short selling activity of NYSE-listed insurance stocks around Hurricanes Katrina and Rita. We find that abnormal short selling does not increase until two trading days after the landfall of Hurricane Katrina and that short selling activity is much more significant around Rita. We find a substantial increase in short selling activity in the trading days preceding the landfall of Rita and relatively less short selling activity in the trading days after landfall. We find little evidence that suggests short sellers short insurance stocks with more potential exposure to the Gulf region than other insurance stocks. Analyzing the short sale behavior around Katrina and Rita, we find evidence consistent with adaptive learning [e.g Grossman and Stiglitz (1980), Bray (1982) and Routledge (1999)] by short sellers.
Keywords: short selling, short sales, hurricane, castastrophe
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