The potential losses from catastrophes have led financial researchers to address the following questions: (1) to what extent is catastrophe risk being shared (insured) and is the allocation of catastrophe risk consistent with notions of optimal risk sharing? (2) if not, what market imperfections hinder the efficient allocation of catastrophe risk? and (3) are there government policies or private market solutions that could lead to a more efficient allocation of catastrophe risk? This paper summarizes the research that has been conducted on these questions.

Using NASDAQ reported individual stock level trading volume, we find that analyst research coverage on a stock increases the level of an affiliated broker’s market share of trading volume in that stock by 0.8 percent, on average, which corresponds to an additional annual volume of about one million shares in an average stock. Optimistic recommendations increase the level of market share by an additional 0.3 percent, on average, which is consistent with the notion that analysts have an incentive to issue optimistic recommendations. Also, a broker’s market share of volume increases on average when an affiliated analyst changes his/her recommendation, and decreases with the length of time during which an analyst maintains the same recommendation on a stock. The latter findings suggest that sell-side institutions are rewarded for providing new information to the market and for ongoing research services.

We examine the conditions under which life insurer customers can use a policy loan to protect the unguaranteed cash value in their life insurance policies and annuity contracts from insurer insolvency, and thereby provide market discipline for life insurers. Consistent with policyholders using policy loans to protect their cash value, our empirical evidence indicates that insurers’ policy loan growth rates are negatively associated with measures of insurers’ financial strength, specifically their capital ratios. We also find evidence that the negative association is stronger for insurers that focus on selling annuities.