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Impact of EU-wide Insurance Stress Tests on Equity Prices and Systemic Risk

Author

Listed:
  • Petr Jakubik

    (European Insurance and Occupational Pensions Authority (EIOPA), Germany
    Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Czech Republic)

  • Saida Teleu

    (Maltese Financial Services Authority, Malta
    Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Czech Republic)

Abstract

Since the global financial crisis in 2007, stress tests have become standard tools for regulators and supervisors to assess the risks and vulnerabilities of financial sectors. To this end, the Insurance and Occupational Pensions Authority (EIOPA) regularly performs EU-wide insurance stress tests. This paper analyses the impact of the conducted exercises in 2014, 2016 and 2018 on the equity prices of insurance companies. Using an event study framework, we find a statistically significant impact only for the publication of the 2018 exercise results. Our empirical analysis further suggests that the final version of technical specifications for the 2014 exercise, the initiation of public consultation, and the published stress test scenario of the 2018 exercise contributed to the decline in systemic risk. To our best knowledge, this is the first paper that investigates this topic for the European insurance sector. Our empirical results could help improve the communication and design of future stress test exercises.

Suggested Citation

  • Petr Jakubik & Saida Teleu, 2021. "Impact of EU-wide Insurance Stress Tests on Equity Prices and Systemic Risk," Working Papers IES 2021/25, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jul 2021.
    • Handle: RePEc:fau:wpaper:wp2021_25
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    File URL: https://ies.fsv.cuni.cz/en/veda-vyzkum/working-papers/6457
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    More about this item

    Keywords

    European insurance sector; EU-wide insurance stress test; systemic risk; event study; equity prices;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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