Determinants of the Impact of Large Losses on Stock Returns

C. Ronald Sprecher and Mars A. Pertl

Journal of Insurance Issues, 1986, vol. 9, issue 1, 1-11

Abstract: In a previous study of large losses, Sprecher and Pertl showed that large losses have a significant impact on the return of the firm's stock [11]. The reaction in the stock's return may be interpreted to mean that the decline in stock's return reflects the market's expectations about the economic impact of the loss of the firm. Risk retention, risk transfer decisions also are made based on their anticipated effect on the firm's resources. As a general rule, risk exposures may be retained if they have a minimal effect on the financial resources of the firms and transferred if the impact is viewed as being too great.

Date: 1986
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