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An Investigation of the Short†Run and Long†Run Stock Returns Surrounding Insurer Rating Changes

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  • Leon Chen
  • Jennifer J. Gaver
  • Steven W. Pottier

Abstract

We find that stock returns move in the direction of insurer rating changes in the 12†month period prior to the announcement. There is an additional stock price response following the announcement of a downgrade, but no response to upgrade announcements. The reaction to a downgrade is more pronounced when it involves a smaller insurer, when it spans multiple levels, or when it is a threshold downgrade. Returns are significantly more negative during the 12 months leading up to a downgrade announcement during the financial crisis (2008 and 2009) compared to other sample years.

Suggested Citation

  • Leon Chen & Jennifer J. Gaver & Steven W. Pottier, 2018. "An Investigation of the Short†Run and Long†Run Stock Returns Surrounding Insurer Rating Changes," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 85(1), pages 35-67, March.
    • Handle: RePEc:bla:jrinsu:v:85:y:2018:i:1:p:35-67
    DOI: 10.1111/jori.12138
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    Cited by:

    1. Ma, Yu Luen & Ren, Yayuan, 2023. "InsurTech—Promise, threat or hype? Insights from stock market reaction to InsurTech innovation," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    2. Alcalde, Pilar & Vial, Bernardita, 2022. "Implicit trade‐offs in replacement rates: Consumer preferences for firms, intermediaries and annuity attributes," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    3. Chiang, Chia-Chun & Niehaus, Greg, 2024. "Market discipline and policy loans," Journal of Banking & Finance, Elsevier, vol. 159(C).
    4. Abhijit Sharma & Diara Md. Jadi & Damian Ward, 2021. "Analysing the determinants of financial performance for UK insurance companies using financial strength ratings information," Economic Change and Restructuring, Springer, vol. 54(3), pages 683-697, August.

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