Market reaction to regulatory action in the insurance industry : the case of contingent commission
Document Type
Journal article
Source Publication
Journal of Risk and Insurance
Publication Date
6-2010
Volume
77
Issue
2
First Page
347
Last Page
368
Publisher
American Risk and Insurance Association
Abstract
We examine the market's reaction to New York Attorney General Eliot Spitzer's civil suit against mega-broker Marsh for bid rigging and inappropriate use of contingent commissions within a generalized autoregressive conditionally heteroskedastic (GARCH) framework. Effects on the stock returns of insurance brokers and insurers are tested. The findings are: (1) GARCH effects are significant in modeling broker/insurer returns; (2) the suit generated negative effects on the brokerage industry and individual brokers, suggesting that contagion dominates competitive effects; (3) spillover effects from the brokerage sector to insurance business are significant and mostly negative, demonstrating industry integration; and (4) information-based contagion is supported, as opposed to the pure-panic contagion.
DOI
10.1111/j.1539-6975.2009.01327.x
Print ISSN
00224367
E-ISSN
15396975
Publisher Statement
Copyright © The Journal of Risk and Insurance, 2010. Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Cheng, J., Elyasiani, E., & Lin, T.-T. (2010). Market reaction to regulatory action in the insurance industry: The case of contingent commission. Journal of Risk and Insurance, 77(2), 347-368. doi: 10.1111/j.1539-6975.2009.01327.x