Catastrophe securitization: a multi-factor event study on the corporate demand for risk management

This paper examines the market response to the issuance of catastrophe securities by public companies. We test for market responses to catastrophe security issuances in order to determine whether they reflect the theoretical predictions of the corporate demand for insurance literature. A multi-factor world market event methodology and a single-factor event methodology are used to test Cumulative Average Abnormal Returns for significance. Empirical results suggest that catastrophe bond issuance is perceived as a value added project by investors, reflected in positive abnormal returns about the issue date. Furthermore, cross-sectional analysis suggests that abnormal returns are higher for non-insurance companies, are decreasing in firm size, and are higher issues that utilize modeled loss triggers.