ON THE DETERMINANTS OF DERIVATIVE HEDGING BY INSURANCE COMPANIES: EVIDENCE FROM TAIWAN
Journal Title: Asian Economic and Financial Review - Year 2012, Vol 2, Issue 4
Abstract
There has been considerable growth in the derivatives holdings of Taiwanese insurance companies in recent years and this study examines the determinants of derivative use for both life and non-life companies. The determinants are different in the two insurance sectors. For the life sector, we find that large firms and firms exposed to either foreign exchange risk or interest rate risk (due to the duration of liabilities being greater than that of the assets) are more likely to participate in derivative hedging activities. In the case of foreign exchange risk, the greater the exposure, the greater the derivative holdings (as a proportion of the total assets of the firm). For the non-life sector, exposure to interest rate risk (as measured by net interest margin) and foreign exchange risk have a significant influence on the derivative participation decision. The level of derivative holdings is then positively related to foreign exchange exposure and negatively related to the level of reinsurance.
Authors and Affiliations
Yung-Ming Shiu| Professor, Department of Risk Management and Insurance, Research Fellow, Risk and Insurance Research Center, College of Commerce National Chengchi University, Taiwan 64, Sec. 2, Zhi-Nan Road, Wen-Shan District, Taipei 11605, Taiwan., Chi- Feng Wang| Assistant Professor Department of Business Administration National Yunlin University of Science and Technology No.123, University Road, Section 3, Douliou, Yunlin 64002, Taiwan., Andrew Adams| School of Management and Languages Heriot-Watt University Edinburgh, EH14 4AS, UK., Yi-Cheng Shin| Graduate Institute of International Business, Tunghai University, Taiwan
TICK SIZE AND COMMONALITY IN LIQUIDITY
This study suggests that the change of tick size, particularly in a step-function tick system, accounts for cross-sectional variation in market liquidity. We explored the relative significance of commonality in liquidity...
THE TAIWANESE BUSINESSMEN ASSESS THE INVESTMENT ENVIRONMENT OF CHINA – CONSTRUCTION AND APPLICATION OF PR AHP PROGRAM
The economy of China has been rapidly growing in recent years. One of the important reasons is that there are a large number of foreign capital investments made in China. Creating a good investment environment in order t...
MARKET EFFICIENCY OF ASEAN STOCK MARKETS
In this paper, we examine the stock market efficiency of the members of the Association of South East Asian Nations (ASEAN). We use the conventional individual variance ratio tests like the Lo and MacKinlay (1988) test,...
A COMPARATIVE STUDY OF THE TAIWAN AND JAPAN EQUITY AND FOREIGN EXCHANGE MARKETS: MODELING, ESTIMATION AND APPLICATION OF THE COMPONENT GARCH-IN-MEAN MODEL
The main purpose of this paper is to verify the effectiveness of the bivariate Component GARCH-in-mean (GARCH-M) model and analyze the interactions and risk premium of equity markets by exploring the short- and long-run...
REFLECTS THE HIDDEN: MEASURING SRI LANKAN SHADOW ECONOMY
This study refines both theoretical and pragmatic basis in estimating the size of shadow economy in Sri Lanka. Theoretical investigation had noticed a possibility of use the rate of underemployment as a determinant to me...