Insurer Stock Returns in Response to Hurricane Sandy

Abstract

This paper aims to expand the scope of research regarding the effect of a natural disaster on property-casualty insurer stock returns to understand how efficiently the market responds in the wake of such a disaster as well as continue to compound the base of knowledge concerning the economic impact of Hurricane Sandy. Using stock return data from 54 property-casualty insurer securities, this paper employs a standard event study methodology using the market model to determine the insurer market response to Hurricane Sandy. Further, the study goes a step further by dividing the dataset of firms into two groups based on their level of exposure to Hurricane Sandy’s most impacted region (the state of New Jersey) and using a cross-sectional analysis to determine whether investors took this information into account. Results exhibited through these analyses demonstrate that there was an overall negative share price reaction to the storm and that firms with increased exposure experienced a greater negative reaction than unexposed firms.