Insuring September 11th: Market Recovery and Transparency

Neil A Doherty, Joan Lamm-Tennant and Laura T Starks

Journal of Risk and Uncertainty, 2003, vol. 26, issue 2-3, 179-99

Abstract: The terrorist attacks on the World Trade Center caused unprecedented economic and structural ramifications in the insurance markets, resulting in considerable uncertainty and informational asymmetry. We test several theoretical models of how markets respond to and recover from extreme capital shocks. Using the capacity constraint, post-loss investment and implicit insurance contract models, we develop testable hypotheses predicting the temporal and cross sectional variation in insurance company stock prices following September 11th. We find evidence consistent with the models' predictions, in particular, the predictions regarding relations between net losses and leverage and stock price performance after the shock. Copyright 2003 by Kluwer Academic Publishers

Date: 2003
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