Market reaction to regulatory action in the insurance industry : the case of contingent commission
Journal of Risk and Insurance
American Risk and Insurance Association
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.
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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