The COVID-19 Pandemic and Chinese Insurance Firms: A Panel Predictability Analysis

ABSTRACT

This paper examines whether the COVID-19 pandemic predicts Chinese insurance firms’ stock excess returns. COVID-19 is proxied using three indices: the stringency index, containment and health indices, and the government support index. We use monthly data from January 2020 to September 2020 on 64 insurance firms. Using a newly developed factor-augmented panel predictability model, we find that COVID-19 is a statistically insignificant predictor of excess returns. Our results are robust to the use of different control predictors such as macro variables, financial indicators and Fama-French factors.

KEYWORDS:

• Insurance
• excess returns
• COVID-19
• factor-augmented panel regression

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. See https://www.allianz-asiapacific.com/news/allianz-sets-up-fund-to-support-chinas-fight-against-the-coronavirus-epidemic.html.

2. See https://www2.deloitte.com/cn/en/pages/financial-services/articles/extraordinary-service-covid-19-and-china-insurance-industry.html.

3. See a report by Deloitte for detail discussion on the impact of pandemic on insurance industry: https://www2.deloitte.com/ie/en/pages/covid-19/articles/impact-COVID-19-insurance-industry.html.

4. The Westerlund and Sharma (2019) model allows for multiple stationary predictors and it works perfectly when a predictor is either cross-sectional or time invariant as it can become collinear with the unobservable heterogeneity which leads to an identification problem.

5. For a recent survey of the literature, see Narayan (2021).

6. Available online at Kenneth R. French – Description of Fama/French Factors (dartmouth.edu).

Additional information

Funding

This work was supported by Zhejiang Provincial Natural Science Foundationof China under Grant [No.Y22G030018]; The National Social Science Fund, China[No. 19BJY225].