Financial theory has long recognized the structural relationship between capital and risk. This article posits reinsurance usage as a new endogenous decision variable and analyzes its effect on this decision mix from a sample of U.S. property-liability insurance firms. Empirical results obtained from a simultaneous equation model confirm the mutual interactions among capital, reinsurance and risk taking. Risk taking is positively related to capital, which highlights the effectiveness of regulatory mechanisms and the relevance of the capital buffer hypothesis. Reinsurance is negatively associated with capital, for which it displays a substitutive effect. These results seem to vary with the insurers' level of capitalization, affiliation with a group, size, and organizational form. Unlike other decision variables, the capital ratio is adjusted to its target level.
The paper employs an event study methodology to investigate the macroeconomic announcements effects on S&P500 and oil prices. Our results provide evidence of a significant impact of the US macroeconomic news on oil prices. This impact is split into two components, namely the direct effect (common response) and indirect effect (volatility transmission). Altogether our results show that the volatility transmission is bidirectional since a significant volatility transmission from the oil market to the US stock market is revealed. Furthermore, a higher volatility transmission is recorded from the oil market to the stock market especially after the release of consumption indicators.
<p>This paper investigates the herding behavior of investors in 18 European countries around US macroeconomic announcements. By considering daily data from February 3, 2000 through July 31, 2011 and a large sample of US macroeconomic indicators, we find evidence that the intentional herding behavior intensity decreases when accounting for US macroeconomic news. The herding behavior is adopted intentionally in some European countries namely France, Switzerland and Portugal while spuriously in Greece. In addition to herding with their respective domestic markets, investors in the first three countries herd around some US macroeconomic announcements, suggesting that these investors reveal a somewhat spurious herding behavior. Findings support evidence that investors in Belgium, Finland and Ireland adopt rational investment decision making with regard to their respective domestic markets, but show pronounced herding behavior around US announcements mainly the case of Finland and Ireland.</p>
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