Market reaction to regulatory action in the insurance industry : the case of contingent commission

Jiang CHENG, Elyas ELYASIANI, Tzu Ting LIN

Research output: Journal PublicationsJournal Article (refereed)

14 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)347-368
Number of pages22
JournalJournal of Risk and Insurance
Volume77
Issue number2
DOIs
Publication statusPublished - 1 Jun 2010
Externally publishedYes

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