Interest rate exposure of European insurers

Jareño, Francisco; Tolentino, Marta; González, María de la O; Medina, María Ángeles

doi:10.1080/13571516.2019.1681789

Cited by 5 publications

(7 citation statements)

References 26 publications

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“…These two models study the sensitivity of the IBEX-35 companies' returns to changes in all their explanatory factors. Additionally, these two factor models are estimated by QR following previous studies, such as [3,4,6,23], among others.…”

Section: Analysis Of Resultsmentioning

confidence: 99%

“…Second, the QR methodology relaxes the restrictive assumption that error terms are identically distributed in all points of the conditional distribution, which implicitly recognizes heterogeneity. Furthermore, it offers more solid estimates in nonideal environments, as established by [6,19,22,23], among others.…”

Section: Qr Methodologymentioning

confidence: 95%

“…Furthermore, β θ ij measures the sensitivity of stock return j at quantile theta to movements in factor i. The quantiles can be interpreted as follows: high values of theta are related to periods of expansion, and low values are associated with periods of recession ( [23,29,30]; among others).…”

Section: Qr Methodologymentioning

confidence: 99%

“…According to [3,6,18,23,30] , among others, the sensitivity of stock market returns to changes in explanatory factors may vary depending on the stage of the economic cycle. Thus, a robustness test was performed on the two models presented in this paper to conduct a deep analysis of the The mean adjusted R 2 coefficients of both Models A and B show a U-shape along the theta values, which means that these models will have a strong explanatory power in the extreme quantiles.…”

Section: Robustness Testmentioning

confidence: 99%

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Analysis of the Spanish IBEX-35 Companies’ Returns Using Extensions of the Fama and French Factor Models

2020

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This paper studies in depth the sensitivity of Spanish companies’ returns to changes in several risk factors between January 2000 and December 2018 using the quantile regression approach. Concretely, this research applies extensions of the Fama and French three- and five-factor models (1993 and 2015), according to González and Jareño (2019), adding relevant explanatory factors, such as nominal interest rates, the Carhart (1997) risk factor for momentum and for momentum reversal and the Pastor and Stambaugh (2003) traded liquidity factor. Additionally, for robustness, this paper splits the entire sample period into three sub-sample periods (pre-crisis, crisis and post-crisis) to analyse the results according to the economic cycle. The main conclusions of this paper are fourfold: First, these two models have the greatest explanatory power in the extreme quantiles of the return distribution (0.1 and 0.9) and more specifically in the lowest quantile 0.1. Second, the second model, based on the Fama and French five-factor model, shows the highest explanatory power not only in the full period but also in the three sub-periods. Third, the bank BBVA is the company that shows the highest sensitivity to changes in the explanatory factors in most periods because its adjusted R2 is the highest. Fourth, the stage of the economy with the highest explanatory power is the crisis subperiod. Thus, the final conclusion of this paper is that the second model explains best variations in Spanish companies’ returns in crisis stages and low quantiles.

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Section: Analysis Of Resultsmentioning

confidence: 99%

Section: Qr Methodologymentioning

confidence: 95%

Section: Qr Methodologymentioning

confidence: 99%

Section: Robustness Testmentioning

confidence: 99%

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Analysis of the Spanish IBEX-35 Companies’ Returns Using Extensions of the Fama and French Factor Models

2020

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“…In fact, the ECB’s expansive monetary policy reduced interest rates in Europe, which further challenged the EMU insurance market’s returns due to a high sensitivity to interest rate changes in this sector (see, for instance, Van Riet 2017 and Jareño et al. 2020 ). Berdin and Gründl ( 2015 ) state that the impact of the ongoing low interest rate environment will be particularly strong for small and medium-sized life insurance companies that are invested strongly in sovereign bonds.…”

Section: Government Bonds As Asset Class For European Life Insurersmentioning

confidence: 99%

Risk premia and the European government bond market: new empirical evidence and some thoughts from the perspective of the life insurance industry

et al. 2021

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We study yield spreads between government bonds in the European Monetary Union. This segment of the global fixed income market is of particular importance for insurance companies in Europe. Our empirical research strategy is inspired by Gunay (2020) who has analyzed the relationship between credit and liquidity risk in the United States using Granger causality tests. More specifically, we employ the procedure developed by Toda and Yamamoto (1995) to test for Granger causality among yield spreads in five different member countries of the European Monetary Union (namely Austria, Belgium, France, Italy and Ireland) relative to Germany. We examine interest rate data from bonds with three different maturities (5, 10 and 30 years). Given the importance of long-term bonds as asset class for European life insurers and pension funds, the empirical results from the often ignored market for government bonds with a maturity of 30 years should be of interest. With regard to long-term sovereign debt, there is no evidence for Granger causality among the time series examined here. Consequently, the risk premia required by investors to hold government bonds of one specific member country of the EMU do not help to forecast the risk premia that have to be paid by other countries. Given the structure of their liabilities, this empirical finding should be of high relevance for portfolio and risk managers in the European life insurance industry and in pension funds. With regard to the yield spreads to be observed in the market for 10-year government bonds, there seems to be no clear picture. Focusing on fixed income securities with a maturity of 5 years, there is one very interesting empirical finding. The test results reported here seem to imply that there is unidirectional Granger causality running from the yield spreads in all other four countries to Austria. Given that Austria is a comparably small country which is assumed to be in a fiscally stable position, this result could be interpreted as evidence for credit risk premia as being helpful to forecast liquidity risk premia in the market for medium-term government bonds issued by member states of the European Monetary Union.

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Extension of the Fama and French model: A study of the largest European financial institutions

Jareño

González

Escolástico

2020

International Economics

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Interest rate exposure of European insurers

Cited by 5 publications

References 26 publications

Analysis of the Spanish IBEX-35 Companies’ Returns Using Extensions of the Fama and French Factor Models

Analysis of the Spanish IBEX-35 Companies’ Returns Using Extensions of the Fama and French Factor Models

Risk premia and the European government bond market: new empirical evidence and some thoughts from the perspective of the life insurance industry

Extension of the Fama and French model: A study of the largest European financial institutions

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