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Life Insurer Cost of Equity with Asymmetric Risk Factors

Author

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  • Vickie L. Bajtelsmit
  • Sriram V. Villupuram
  • Tianyang Wang

Abstract

This study presents an improved model for estimating life insurer cost of capital with the inclusion of upside and downside risk factors and controlling for life insurer characteristics. Although various asymmetric measures of market risk have been shown to be priced factors for the broader equity market, life insurer realized equity returns include a much larger premium for bearing downside risk, even after controlling for firm characteristics and other measures of risk. Cross-sectional regression analysis finds a positive (negative) premium for downside (upside) betas, conditional on down and up markets, respectively. Coskewness and cokurtosis are also priced factors.

Suggested Citation

  • Vickie L. Bajtelsmit & Sriram V. Villupuram & Tianyang Wang, 2015. "Life Insurer Cost of Equity with Asymmetric Risk Factors," The Financial Review, Eastern Finance Association, vol. 50(3), pages 435-457, August.
    • Handle: RePEc:bla:finrev:v:50:y:2015:i:3:p:435-457
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    File URL: http://hdl.handle.net/10.1111/fire.12073
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    Cited by:

    1. Tianyang Wang & Robert G. Schwebach & Sriram V. Villupuram, 2022. "Reference point formation: Does the market whisper in the background?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(2), pages 384-421, June.

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