The Market Valuation and Trading Volume Effects of the Creation of the Florida Hurricane Catastrophe Fund on Property‐liability Insurers

Carl Pacini and David C. Marlett

Journal of Business Finance & Accounting, 2001, vol. 28, issue 3‐4, 407-445

Abstract: The Florida Hurricane Catastrophe Fund was officially created in November, 1993. This study analyzes investor reactions during the creation of the Florida Hurricane Catastrophe Fund. We find significant share price reactions for four of six legislative events consistent with the predictions of the theory outlined. We use both a generalized least squares portfolio approach and Corrado's (1989) rank statistic, a nonparametric event study methodology, to arrive at our findings. Empirical analysis of trading volume corroborates the findings involving share price reactions. We also find that the market is able to discriminate between property‐liability insurers on the basis of hurricane exposure and firm size.

Date: 2001
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