Capitalizing on Catastrophe: Short Selling Insurance Stocks Around Hurricanes Katrina and Rita

We develop several hypotheses regarding short-selling activity around Hurricanes Katrina and Rita. We find that abnormal short selling does not increase until 2 trading days after the landfall of Katrina and that short-selling activity is much more significant around Rita. We find a substantial incr...

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Bibliographic Details
Published in:The Journal of risk and insurance 2008-12, Vol.75 (4), p.967-996
Main Authors: Blau, Benjamin M., Van Ness, Robert A., Wade, Chip
Format: Article
Language:English
Subjects:
Business
Derivatives
Disasters
Earthquake insurance
Hedging (Finance)
Hurricanes
Hypotheses
Insurance companies
Insurance premiums
Insurance providers
Insured losses
Investments
Learning
Prices
Ratios
Risk sharing
Short sales
Statistical significance
Stock prices
Stocks
Studies
Surveys
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Summary:We develop several hypotheses regarding short-selling activity around Hurricanes Katrina and Rita. We find that abnormal short selling does not increase until 2 trading days after the landfall of Katrina and that short-selling activity is much more significant around Rita. We find a substantial increase in short-selling activity in the trading days prior to the landfall of Rita and relatively less short-selling activity in the trading days after landfall. There is little evidence that suggests that traders short insurance stocks with more potential exposure in the Gulf region than other insurance stocks in the days before landfall.
ISSN:0022-4367
1539-6975
DOI:10.1111/j.1539-6975.2008.00293.x