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An Examination of Share Price Behavior Surrounding the 2005 Hurricanes Katrina and Rita

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  • Partha Gangopadhyay
  • Joseph D. Haley
  • Li Zhang

Abstract

Natural disasters can affect insurer share prices in two counterbalancing ways: (1) through the uncertainty regarding an insurer’s ability to handle loss claims and (2) through a potential increase in demand for insurance and/or increase in insurance rates. Given the historically catastrophic damage inflicted by hurricane Katrina in 2005, and the close geographic and temporal occurrence of hurricane Rita, an evaluation of insurer share price response is warranted. Our analysis shows that statistically significant reactions did occur. Insurer share prices reacted negatively to hurricane Katrina. The reaction of insurer share prices to Rita was significant, though mixed, with positive/negative results being influenced by Rita’s changing circumstances. Our study also reveals the level of underwriting exposure to be a significant determinant in the magnitude of the insurer share price reactions.

Suggested Citation

  • Partha Gangopadhyay & Joseph D. Haley & Li Zhang, 2010. "An Examination of Share Price Behavior Surrounding the 2005 Hurricanes Katrina and Rita," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 33(2), pages 132-151.
    • Handle: RePEc:wri:journl:v:33:y:2010:i:2:p:132-151
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    Cited by:

    1. Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Karikari, Nana Kwasi & Gil-Alana, Luis Alberiko, 2022. "The outbreak of COVID-19 and stock market liquidity: Evidence from emerging and developed equity markets," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    2. Döhrmann, David & Gürtler, Marc & Hibbeln, Martin, 2013. "Insured loss inflation: How natural catastrophes affect reconstruction costs," Working Papers IF44V2, Technische Universität Braunschweig, Institute of Finance.
    3. David Döhrmann & Marc Gürtler & Martin Hibbeln, 2017. "Insured Loss Inflation: How Natural Catastrophes Affect Reconstruction Costs," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(3), pages 851-879, September.
    4. Frederick Schuh & Tanja Jaeckle, 2023. "Impact of hurricanes on US insurance stocks," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 26(1), pages 5-34, March.
    5. Terver Kumeka & Oluwatosin Adeniyi, 2023. "Stock markets response to contagious disease: Evidence on the impact of COVID‐19 in the three worst hit African economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4476-4499, October.
    6. Ashraf, Badar Nadeem, 2020. "Stock markets’ reaction to COVID-19: Cases or fatalities?," Research in International Business and Finance, Elsevier, vol. 54(C).
    7. Najam, Najam Ul Sabeeh & Mehmood, Arshad Mehmood, 2019. "The economic cost of terrorism and natural disasters: A deeper analysis of the financial market markets of Pakistan," MPRA Paper 92278, University Library of Munich, Germany.

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