Market Reaction to Regulatory Action in the Insurance Industry: The Case of Contingent Commission

Jiang Cheng, Elyas Elyasiani and Tzu‐Ting Lin

Journal of Risk & Insurance, 2010, vol. 77, issue 2, 347-368

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.

Date: 2010
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https://doi.org/10.1111/j.1539-6975.2009.01327.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:77:y:2010:i:2:p:347-368

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