Centro de Documentacion de Fundación MAPFRE - Diversification through catastrophe bonds : lessons from the subprime financial crisis

MAP20150004420

Diversification through catastrophe bonds : lessons from the subprime financial crisis / Peter Carayannopoulos, M. Fabricio Perez

Sumario: Are catastrophe bonds (CAT bonds) zero-beta investments? Are they a valuable new source of diversification for investors? We study these questions by analysing the dynamic relations of CAT bond returns and the returns of the stock, corporate bond and government bond markets. Our multivariate GARCH model results provide evidence that CAT bonds are zero-beta assets only in non-crisis periods. We document that CAT bonds were not immune to the effects of the recent financial crisis. With the collapse of Lehman Brothers, CAT bond returns became significantly correlated with the market. However, the relatively small effect of the crisis on CAT bonds compared with other asset classes make them a valuable source of diversification for investors. Finally, it seems that the improved structures for new CAT bonds issued since 2009 have been positively received by the market, as CAT bond betas returned to pre-crisis levels

En: Geneva papers on risk and insurance : issues and practice. - Geneva : The Geneva Association, 1976- = ISSN 1018-5895. - 05/01/2015 Volumen 40 Número 1 - enero 2015 , p. 1-28

1. Mercado de valores . 2. Bonos . 3. Activos financieros . 4. Inversiones financieras . 5. Crisis financiera . 6. Fondo de Catástrofe . 7. Valoración de activos . 8. Mercado de seguros . 9. Métodos estadísticos . I. Perez, M. Fabricio . II. Title.