The Impact of the Interest Rate on Insurance/Financials Industries: The Analysis of the Stock Market's Reactions to Federal Funds Rate Changes

Charles Yang

North American Actuarial Journal, 2013, vol. 17, issue 1, 29-40

Abstract: Taking an event-study approach, this article examines the impact of the interest rate on the insurance industry and its subindustries in contrast with other financials industries through the analysis of the stock market's reactions to federal funds rate changes. In addition to calculating the stock market's reaction on event days, this article analyzes market over- or underreaction by examining the stock market's responses on the following days. Furthermore, the stock market's reaction on days preceding event days is explored to test pre-announcement effects. This article also investigates asymmetries in responses of insurance and financials stock markets to certain characteristics of federal rate changes. This research provides important insights to investors, regulators and policymakers, and the management of insurance and financials companies in understanding the link between monetary policy and asset prices and the policy transmission mechanism particularly related to insurance and financials industries.

Date: 2013
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DOI: 10.1080/10920277.2013.773243

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