<scp>Capitalizing on Catastrophe: Short Selling Insurance Stocks Around Hurricanes Katrina and Rita</scp>

Blau, Benjamin M.; Ness, Robert A. Van; Wade, Chip

doi:10.1111/j.1539-6975.2008.00293.x

Cited by 24 publications

(14 citation statements)

References 34 publications

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“…31 31 The volatility peak coincides with an increased level of short selling reported by Blau et al (2008). …”

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confidence: 75%

“…They also provide evidence that the volatility of insurance stocks increased after Andrew and 9‐11. Blau et al (2008) show that short selling increased 2 days after the landfall of Katrina.…”

Section: Introductionmentioning

confidence: 95%

“…14 14 Similarly, Blau et al (2008) show that there is very little evidence that traders short insurance stocks that have more potential exposure in the Gulf region than other insurance stocks in the days prior to a hurricane landfall. …”

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confidence: 99%

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The Impact of Catastrophes on Insurer Stock Volatility

Thomann¹

2012

J of Risk & Insurance

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This article investigates the impact of natural catastrophes and the 9‐11 attacks on (1) the volatility of insurance stocks and (2) the correlation of insurance stocks with the market. We find that natural catastrophes increase the volatility of insurance stocks. They also have a tendency to reduce the correlation of insurance stocks and the market. Investors can, consequently, diversify natural catastrophe risk by additionally holdings of a market portfolio. However, this does not hold for 9‐11. The events of 9‐11 led to increases in volatility and, simultaneously, to an increase in correlation. We also find evidence that 9‐11 increased the beta of insurance stocks.

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“…31 31 The volatility peak coincides with an increased level of short selling reported by Blau et al (2008). …”

mentioning

confidence: 75%

Section: Introductionmentioning

confidence: 95%

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The Impact of Catastrophes on Insurer Stock Volatility

Thomann¹

2012

J of Risk & Insurance

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“…He finds that natural catastrophes increase the volatility of insurance stocks but reduce the correlation of insurance stocks with the market. Blau, Ness, and Wade (), Ewing, Hein, and Kruse (), and Lamb (, ) find that insurer stock prices start declining in the week before landfall of a potential catastrophe in the cases of Hurricanes Katrina, Floyd, and Andrew. Interestingly, Blau, Ness, and Wade () do not find significant short‐selling activity prior to Katrina's landfall but during 3 trading days after the landfall.…”

Section: Literaturementioning

confidence: 99%

Catastrophe Risk and the Implied Volatility Smile

Ammar¹

2018

J of Risk & Insurance

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Property-casualty insurers are exposed to rare but severe natural disasters. This article analyzes the relation between catastrophe risk and the implied volatility smile of insurance stock options. We find that the slope is significantly steeper compared to the rest of the economy and exhibits a seasonal pattern due to hurricanes. We are able to link the insurance-specific tail risk component derived from options with the risk spread from catastrophe bonds and global economic losses caused by catastrophes. Our results provide an accurate, high-frequency calculation for catastrophe risk linking the traditional derivatives market with insurance-linked securities.The hurricane does not know the rate that was charged for the hurricane policy, so it's not going to respond to how much you charge. And if you charge an inadequate premium, you will get creamed over time. . I would like to thank two anonymous referees, 1 We define catastrophe risk as a specific and independent component of the overall tail risk to which companies are exposed. Thus, catastrophe risk is one of many potential sources of distress to a firm (here, the P&C insurer). We follow Froot's (2001) definition of catastrophe risk, which relates to all events linked to natural hazard (e.g., hurricanes, earthquakes, wind and ice storms, floods, etc.) causing financial losses. In theory, our definition expands to man-made disaster such as terrorist attacks. However, such events not only affect the P&C insurance industry but also the rest of the economy (see, e.g., Brounen and Derwall, 2010;Thomann, 2013). As our research design relies on identifying differences between insurers and the rest of the economy, man-made disaster can only have a marginal impact on our analysis. Therefore, the focus of this article is on natural disasters.

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“…12 Cagle (1996). 13 Blau et al (2008). 14 In current event studies, Carhart's four-factor model, which extends the Fama-French three-factor model by a momentum factor, is standard.…”

Section: Hypothesismentioning

confidence: 99%

Do Typhoons Cause Turbulence in Property-Liability Insurers’ Stock Prices?

Yamasaki

2015

Geneva Pap Risk Insur Issues Pract

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The aim of this paper is to clarify how natural disasters influence the stock prices of propertyliability insurance companies. Examining a series of typhoons that made landfall in Japan, this paper shows that the stock prices of property-liability insurers, on average, increase around typhoon landfalls. However, cross-sectional results indicate that specific insurer or typhoon characteristics can temper the increase. First, a property-liability insurer's stock price reacts more positively around typhoons of greater scale and more negatively around typhoons with longer intervals from the previous typhoon landfall, with longer times to landfall, or that cause more serious residential damage. Second, a property-liability insurer's stock price reacts according to its profitability or business structure. In addition, insurers with a larger capital buffer or of greater financial soundness are evaluated relatively higher around typhoon landfall since the deregulation of the insurance industry.

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

Cited by 24 publications

References 34 publications

The Impact of Catastrophes on Insurer Stock Volatility

The Impact of Catastrophes on Insurer Stock Volatility

Catastrophe Risk and the Implied Volatility Smile

Do Typhoons Cause Turbulence in Property-Liability Insurers’ Stock Prices?

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