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Market Reaction to Regulatory Action in the Insurance Industry: The Case of Contingent Commission


  • Jiang Cheng
  • Elyas Elyasiani
  • Tzu-Ting Lin


We examine the market's reaction to New York Attorney General Eliot Spitzer's civil suit against mega-broker Marsh for bid rigging and inappropriate use of contingent commissions within a generalized autoregressive conditionally heteroskedastic (GARCH) framework. Effects on the stock returns of insurance brokers and insurers are tested. The findings are: (1) GARCH effects are significant in modeling broker/insurer returns; (2) the suit generated negative effects on the brokerage industry and individual brokers, suggesting that contagion dominates competitive effects; (3) spillover effects from the brokerage sector to insurance business are significant and mostly negative, demonstrating industry integration; and (4) information-based contagion is supported, as opposed to the pure-panic contagion. Copyright (c) The Journal of Risk and Insurance, 2009.

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  • Jiang Cheng & Elyas Elyasiani & Tzu-Ting Lin, 2010. "Market Reaction to Regulatory Action in the Insurance Industry: The Case of Contingent Commission," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 347-368.
  • Handle: RePEc:bla:jrinsu:v:77:y:2010:i:2:p:347-368

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    Cited by:

    1. Yu-Luen Ma & Nat Pope & Xiaoying Xie, 2014. "Contingent Commissions, Insurance Intermediaries, and Insurer Performance," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 17(1), pages 61-81, March.
    2. Elyas Elyasiani & Sotiris K. Staikouras & Panagiotis Dontis-Charitos, 2016. "Cross-Industry Product Diversification and Contagion in Risk and Return: The case of Bank-Insurance and Insurance-Bank Takeovers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(3), pages 681-718, September.
    3. Pennathur, Anita & Smith, Deborah & Subrahmanyam, Vijaya, 2014. "The stock market impact of government interventions on financial services industry groups: Evidence from the 2007–2009 crisis," Journal of Economics and Business, Elsevier, vol. 71(C), pages 22-44.
    4. Papadamou, Stephanos & Siriopoulos, Costas, 2014. "Interest rate risk and the creation of the Monetary Policy Committee: Evidence from banks’ and life insurance companies’ stocks in the UK," Journal of Economics and Business, Elsevier, vol. 71(C), pages 45-67.
    5. Uwe Focht & Andreas Richter & Jörg Schiller, 2013. "Intermediation and (Mis-)Matching in Insurance Markets—Who Should Pay the Insurance Broker?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(2), pages 329-350, June.

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