Market reactions to natural disasters

: an event study on the impact of hurricane Katrina on insurance stock prices

Abstract

This paper investigates the stock market response of insurance companies, during and after Hurricane Katrina landfall in Gulf Coast states of the U.S. This research differentiates from previous studies by incorporating Allianz and Zurich due to their large presence and losses in the affected regions. Using the Event Study Methodology, I examine two samples of Insurance Companies, separating those directly affected by the hurricane with those that had minimal exposure. I firstly calculated the Average Abnormal Returns (AAR) in the days before and after the landfall and tested the significance of the results. Secondly, I cumulated the AARs obtaining the Cumulative Average Abnormal Returns across various time windows surrounding the hurricane's landfall, adjusting for currency fluctuations where necessary. The findings reveal that Affected companies experienced negative and statistically significant CAARs. Conversely, the sample of Non Affected firms exhibited slightly negative but not significant CAARs. Thus, the comparison of CAARs between the Affected and Non Affected groups yielded a significant negative difference, supporting the hypothesis that Hurricane Katrina had a distinct and adverse financial impact on insurers with exposure to the disaster zones. This thesis contributes to the literature by adding more evidence to the negative impact of Hurricane Katrina on Insurance companies, even when including non-U.S. companies in the sample.

Date of Award	25 Jan 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Geraldo Cerqueiro (Supervisor)