Did federal funds target rate changes affect the market value of insurance companies?
In this paper, we study the sensitivity of insurance companies’ stock returns with respect to expected and unexpected changes in the Federal funds target rate over the period 1988-2007. We confirm Bernanke and Kuttner (2005) that, as stocks in general, insurance stock returns are only sensitive to the unexpected changes in the Federal funds target rate, but not to the expected ones. However, market-adjusted stock returns do only show a reaction for the non-life insurers. For life insurers, there does not seem to be an industry specific effect on their market value. This can be explained by the business models life and nonlife insurers adopt.
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- Ben S. Bernanke & Kenneth N. Kuttner, 2005.
"What Explains the Stock Market's Reaction to Federal Reserve Policy?,"
Journal of Finance,
American Finance Association, vol. 60(3), pages 1221-1257, 06.
- Ben S. Bernanke & Kenneth N. Kuttner, 2003. "What explains the stock market's reaction to Federal Reserve policy?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
- Ben S. Bernanke & Kenneth N. Kuttner, 2003. "What explains the stock market's reaction to Federal Reserve policy?," Staff Reports 174, Federal Reserve Bank of New York.
- Ben S. Bernanke & Kenneth N. Kuttner, 2004. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," NBER Working Papers 10402, National Bureau of Economic Research, Inc.
- Ben S. Bernanke & Kenneth N. Kuttner, 2004. "What explains the stock market's reaction to Federal Reserve policy?," Finance and Economics Discussion Series 2004-16, Board of Governors of the Federal Reserve System (U.S.).
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- Elijah Brewer & James M. Carson & Elyas Elyasiani & Iqbal Mansur & William L. Scott, 2007. "Interest Rate Risk and Equity Values of Life Insurance Companies: A GARCH-M Model," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(2), pages 401-423.
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- Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
- Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
- Lee, Jae Ha & Stock, Duane R., 2000. "Embedded options and interest rate risk for insurance companies, banks and other financial institutions," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(2), pages 169-187.
- Stone, Bernell K., 1974. "Systematic Interest-Rate Risk in a Two-Index Model of Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(05), pages 709-721, November. Full references (including those not matched with items on IDEAS)
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