U.S. Reinsurance Prices, Financial Quality, and Global Capacity

The puzzle of underwriting cycles and insurance crises in property‐liability insurance has led to numerous economic hypotheses and analyses, yet no single theory seems capable of explaining all of its aspects. Reinsurance is hypothesized to be a potential factor in observed cycles in the primary market; despite this, few underwriting cycle studies focus on reinsurance. The purpose of this research is to investigate determinants of reinsurance prices in the U.S. Nonproportional reinsurance is highlighted, since it is designed to cover the tail of the loss distribution and is considered to be relatively riskier than proportional reinsurance as a result. Separate samples of professional U.S. reinsurers for property and for casualty are studied, based upon the reinsurers' writings of property versus casualty nonproportional reinsurance. The sample period is 1991–1995. The results support both the capacity constraint hypothesis and the risky debt hypothesis, and this is the first research to support both. A major innovation in this study is the use of capacity variables that are broken down by major region of the world.     

Short selling in initial public offerings

Short sale constraints in the aftermarket of initial public offerings (IPOs) are often used to explain short-term underpricing that is subsequently reversed. This paper shows that short selling is integral to aftermarket trading and is higher in IPOs with greater underpricing. Perceived restrictions on borrowing shares are not systematically circumvented by “naked” short selling. Short sellers, on average, do not appear to earn abnormal profits in the near term and our findings are not driven by market makers. Short selling in IPOs is not as constrained as suggested by the literature, implying that other factors may be responsible for underpricing.