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The cross-section of expected stock returns in the property/liability insurance industry

Semir Ben Ammar, Martin Eling and Andreas Milidonis ()

Journal of Banking & Finance, 2018, vol. 96, issue C, 292-321

Abstract: We conduct a comprehensive asset pricing analysis for the U.S. property/liability insurance industry using monthly data from 1988 to 2015. We find that state-of-the-art models such as the Fama and French (2015) five-factor model cannot explain the returns of property/liability insurance stocks in a satisfactory way. We adapt the model proposed by Adrian et al. (2015) for financial institutions and define an insurance-specific five-factor asset pricing model (INS5), which can explain the cross-section of property/liability insurance-stock returns better than competing models. The priced factors are the market return, the book-to-market ratio, return on equity, short-term reversal, and the spread between the property/liability insurance sector and the market return.

Keywords: Asset pricing; Insurance; Multifactor models; APT; Risk factors (search for similar items in EconPapers)
JEL-codes: G12 G22 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jbfina:v:96:y:2018:i:c:p:292-321