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.
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. https://doi.org/10.1111/j.1539-6975.2009.01327.x