Article: Financial innovation as a response to crisis - the case of catastrophe bonds Journal: Global Business and Economics Review (GBER) 2023 Vol.29 No.3 pp.316 - 331 Abstract: Large fluctuations in stock markets, caused by financial problems that may originate in the sector itself, as was the case of the 2007-2009 crisis, or originate in other events, as was the case of the 2020 pandemic that led to a sharp drop in the stock market between the first and second quarter of that year, lead market players to look for instruments that can prevent large losses. This study aims to understand whether innovative instruments such as insurance-linked securities, more specifically catastrophe bonds, can be an alternative to other more traditional instruments. For this purpose, Pearson's coefficient was used to analyse the relationship between the Dow Jones average yearly rate of return variable, between 2001 and 2020, and bonds and securities issued in the USA, between 2001 and 2020. The results showed a strong or tending to strong positive correlation during a specific period of time. Inderscience Publishers - linking academia, business and industry through research

Title: Financial innovation as a response to crisis - the case of catastrophe bonds

Authors: Natália Teixeira; Alexandre Correia; Rui Vinhas da Silva; Leandro Pereira; Sérgio Vinhas da Silva

Addresses: ISG – Business and Economics School, Av. Mal. Craveiro Lopes 2A, 1700-284, Lisboa, Portugal ' ISG – Business and Economics School, Av. Mal. Craveiro Lopes 2A, 1700-284, Lisboa, Portugal ' Business Research Unit – BRU-IUL, ISCTE – Instituto Universitário de Lisboa, Av das Forças Armadas, 1649-026, Lisboa, Portugal ' Business Research Unit – BRU-IUL, ISCTE – Instituto Universitário de Lisboa, Av das Forças Armadas, 1649-026, Lisboa, Portugal ' Universidade Europeia-IADE, UNIDCOM/IADE – Unidade de Investigação em Design e Comunicação, Av. D. Carlos I, 4, 1200-649 Lisboa, Portugal

Abstract: Large fluctuations in stock markets, caused by financial problems that may originate in the sector itself, as was the case of the 2007-2009 crisis, or originate in other events, as was the case of the 2020 pandemic that led to a sharp drop in the stock market between the first and second quarter of that year, lead market players to look for instruments that can prevent large losses. This study aims to understand whether innovative instruments such as insurance-linked securities, more specifically catastrophe bonds, can be an alternative to other more traditional instruments. For this purpose, Pearson's coefficient was used to analyse the relationship between the Dow Jones average yearly rate of return variable, between 2001 and 2020, and bonds and securities issued in the USA, between 2001 and 2020. The results showed a strong or tending to strong positive correlation during a specific period of time.

Keywords: insurance-linked securities; ILS; catastrophe bonds; financial innovation; financial crisis; Pearson correlation coefficient.

DOI: 10.1504/GBER.2023.133289

Global Business and Economics Review, 2023 Vol.29 No.3, pp.316 - 331

Received: 22 Mar 2022
Accepted: 15 Jul 2022
Published online: 11 Sep 2023 *

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Title: Financial innovation as a response to crisis - the case of catastrophe bonds

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