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Nonlinear attractors and asymmetries between non-life insurance premiums and financial markets

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  • Peter Sephton
  • Janelle Mann

Abstract

Understanding how macroeconomic factors influence the underwriting cycle is a critical component of modelling cyclical movements in insurance dynamics. The purpose of this paper was to examine this issue to determine whether macroeconomic factors and non-life insurance premiums share a long-run attractor to which the system tends to return over time. We find strong evidence of linear cointegration in Canada, France, Japan, the UK, and the USA, with nonlinear attractors characterized by asymmetry in Canada, France, and the USA. The results suggest macroeconomic factors have important effects on insurance dynamics. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Peter Sephton & Janelle Mann, 2015. "Nonlinear attractors and asymmetries between non-life insurance premiums and financial markets," Empirical Economics, Springer, vol. 49(3), pages 783-799, November.
    • Handle: RePEc:spr:empeco:v:49:y:2015:i:3:p:783-799
    DOI: 10.1007/s00181-014-0894-7
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    References listed on IDEAS

    as
    1. Sephton, Peter & Mann, Janelle, 2013. "Further evidence of an Environmental Kuznets Curve in Spain," Energy Economics, Elsevier, vol. 36(C), pages 177-181.
    2. Sephton, Peter S., 1995. "Response surface estimates of the KPSS stationarity test," Economics Letters, Elsevier, vol. 47(3-4), pages 255-261, March.
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    4. Peter Sephton & Janelle Mann, 2013. "Threshold Cointegration: Model Selection with an Application," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 56(2), pages 54-77.
    5. Seo, Myung Hwan, 2008. "Unit Root Test In A Threshold Autoregression: Asymptotic Theory And Residual-Based Block Bootstrap," Econometric Theory, Cambridge University Press, vol. 24(6), pages 1699-1716, December.
    6. Peter Sephton, 2008. "Critical values of the augmented fractional Dickey–Fuller test," Empirical Economics, Springer, vol. 35(3), pages 437-450, November.
    7. Ignacio N Lobato & Carlos Velasco, 2007. "Efficient Wald Tests for Fractional Unit Roots," Econometrica, Econometric Society, vol. 75(2), pages 575-589, March.
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    9. Heni Boubaker & Nadia Sghaier, 2014. "How Do the Interest Rate and the Inflation Rate Affect the Non-Life Insurance Premiums ?," Working Papers 2014-282, Department of Research, Ipag Business School.
    10. Lee, Chien-Chiang & Chiu, Yi-Bin, 2012. "The impact of real income on insurance premiums: Evidence from panel data," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 246-260.
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    13. Fredj Jawadi & Catherine Bruneau & Nadia Sghaier, 2009. "Nonlinear Cointegration Relationships Between Non‐Life Insurance Premiums and Financial Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(3), pages 753-783, September.
    14. Bart Hobijn & Philip Hans Franses & Marius Ooms, 2004. "Generalizations of the KPSS‐test for stationarity," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 58(4), pages 483-502, November.
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    Cited by:

    1. Sephton, Peter S., 2019. "El Niño, La Niña, and a cup of Joe," Energy Economics, Elsevier, vol. 84(C).
    2. Hui Shan Lee & Shyue Chuan Chong & Shen Yap & Bik Kai Sia & Ying Xi Chen, 2021. "Does Economic Freedom in Host Countries Lead to Increased Non-Life Insurance Development?," SAGE Open, , vol. 11(4), pages 21582440211, October.
    3. Rangan Gupta & Amine Lahiani & Chi-Chuan Lee & Chien-Chiang Lee, 2019. "Asymmetric dynamics of insurance premium: the impacts of output and economic policy uncertainty," Empirical Economics, Springer, vol. 57(6), pages 1959-1978, December.
    4. Sephton, Peter & Mann, Janelle, 2018. "Gold and crude oil prices after the great moderation," Energy Economics, Elsevier, vol. 71(C), pages 273-281.

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    More about this item

    Keywords

    Insurance dynamics; Macroeconomic influences; Underwriting cycles; Non-life insurance premiums; Nonlinear cointegration; Multivariate adaptive regression spline $$(hbox {MARS}^{mathrm{TM}})$$ ( MARS TM ) ; Threshold cointegration; Asymmetric adjustment; C2; E3; G22;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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