Cross-Industry Product Diversification and Contagion in Risk and Return: The case of Bank-Insurance and Insurance-Bank Takeovers

Cross-Industry Product Diversification and Contagion in Risk and Return: The case of Bank-Insurance and Insurance-Bank Takeovers

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Article ID: iaor20162996
Volume: 83
Issue: 3
Start Page Number: 681
End Page Number: 718
Publication Date: Sep 2016
Journal: Journal of Risk and Insurance
Authors: , ,
Keywords: finance & banking
Abstract:

We investigate the impact of domestic/international bancassurance deals on the risk‐return profiles of announcing and nonannouncing banks and insurers within a GARCH model. Bank‐insurance deals produce intra‐ and interindustry contagion in both risk and return, with larger deals producing greater contagion. Bidder banks and peers experience positive abnormal returns, with the effects on insurer peers being stronger than those on bank peers. Insurance‐bank deals produce insignificant excess returns for bidder and peer insurers and positive valuations for peer banks. Following the deal, the bank bidders' idiosyncratic (systematic) risk falls (increases), while insurance bidders exhibit a lower systematic risk and maintain their idiosyncratic risk.

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