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

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  • Ben Ammar, Semir
  • Eling, Martin
  • Milidonis, Andreas

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.

Suggested Citation

  • Ben Ammar, Semir & Eling, Martin & Milidonis, Andreas, 2018. "The cross-section of expected stock returns in the property/liability insurance industry," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 292-321.
    • Handle: RePEc:eee:jbfina:v:96:y:2018:i:c:p:292-321
    DOI: 10.1016/j.jbankfin.2018.09.008
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    2. Eckert, Christian & Gatzert, Nadine & Heidinger, Dinah, 2020. "Empirically assessing and modeling spillover effects from operational risk events in the insurance industry," Insurance: Mathematics and Economics, Elsevier, vol. 93(C), pages 72-83.

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    Keywords

    Asset pricing; Insurance; Multifactor models; APT; Risk factors;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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