Capitalizing on Catastrophe: Short Selling Insurance Stocks Around Hurricanes Katrina and Rita

40 Pages Posted: 6 Feb 2007 Last revised: 5 Sep 2008

See all articles by Benjamin M. Blau

Benjamin M. Blau

Utah State University - Huntsman School of Business

Robert A. Van Ness

University of Mississippi - Department of Finance

Chip Wade

University of Mississippi

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

Suggested Citation

Blau, Benjamin M. and Van Ness, Robert A. and Wade, Chip, Capitalizing on Catastrophe: Short Selling Insurance Stocks Around Hurricanes Katrina and Rita (February 14, 2008). Available at SSRN: https://ssrn.com/abstract=960999 or http://dx.doi.org/10.2139/ssrn.960999

Benjamin M. Blau

Utah State University - Huntsman School of Business ( email )

3500 Old Main Hill
Logan, UT 84322
United States

Robert A. Van Ness (Contact Author)

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

Chip Wade

University of Mississippi ( email )

Oxford, MS 38677
United States

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