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An Empirical Analysis of Non-Life Insurance Consumption Stationarity*

Listed author(s):
  • Chien-Chiang Lee


    (Department of Finance, National Sun Yat-sen University, Kaohsiung 804, Taiwan.)

  • Yi-Chung Hsu


    (Department of Public Finance and Taxation, National Taichung Institute of Technology, Taichung, Taiwan.)

  • Chi-Chuan Lee


    (Department of Money and Banking, National Chengchi University, Taipei, Taiwan.)

This paper explores whether the stationarity hypothesis of non-life insurance consumptions is supported during the period 1979–2005 for 31 countries. The stationarity of insurance consumption has important implications for modelling and forecasting insurance activities. On a global scale, this paper first implements the recent panel seemingly unrelated regressions augmented Dickey–Fuller unit root test, which allows us to account for possible cross-country effects and to identify how many and which countries of the panel contain a unit root. The main conclusion is that whether non-life insurance consumptions are stationary or not will be affected by different regions and their levels of development. Overall, our empirical results illustrate that non-life insurance consumptions in these countries are a mixture of stationary (integrated of order zero) and non-stationary (integrated of order one) processes. Higher risk aversion, lower income level and lower level of insurance market development may lead to non-stationarity. Finally, for the estimated half-lives of Africa, the degrees of mean reversion are greater than those for Europe and America.

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Article provided by Palgrave Macmillan & The Geneva Association in its journal The Geneva Papers on Risk and Insurance Issues and Practice.

Volume (Year): 35 (2010)
Issue (Month): 2 (April)
Pages: 266-289

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Handle: RePEc:pal:gpprii:v:35:y:2010:i:2:p:266-289
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