The Research Of β Coefficient Estimation In Chinese Listed Life Insurance Companies

The development of world economic globalization has made the relationship of countries in the world continuously strengthen. Economic globalization has brought nations of the world economy continuous development power, such as market, resources, labor, capital and other necessary resource when countries develop.But the economic globalization is just like a "double-edged sword", which brings into the world economy the convenience and profits, however at the same time, it can also bring crisis. At first such a crisis could just be the business failure of a company or a group, but because of the closely connection among countries in the world, the failure affects the other countries. It will be called the crisis. Usually, this kind of crisis event is the catastrophe. A financial entity, the company or of the entire financial system within the financial markets are all related. If the catastrophe happens, it may lead to a cascading failure. A series of cascading failure could lead to the bankruptcy of the entire system or market. This kind of crisis is called systemic risk.As is known, the insurance products are intangible risk. It means the insurance industry must deal with more risk than any other companies in the financial industry. However, it have been fully confirmed that the traditional service of insurance companies and reinsurance companies, such as life insurance, property insurance, liability insurance, health insurance and so on cannot make the financial system break down. On the contrary, the insurance can be the stabilizer of social economic among financial market development. Although the traditional business of insurance companies cannot cause catastrophe, the modern one can. In the insurance companies, the modern business is investment. As is known, investment business is more related with the security market. That is why the risk of insurance companies is much higher than before. One of the most famous insurance companies in the world, AIG (America International Group) triggered a global catastrophe in2008, which is the world financial crisis.The quantitative research of systematic risk can be traced back to1952. At that time, Markowitz creatively put forward the rigorous mathematical method to the stock investment and portfolio investment theory, which made the normative analysis begin and guided how to select the optimal portfolio. After then, W. Shape, J. Lintner and Mossin all obtained nearly consistent theory respectively, namely CAPM model (Capital Asset Pricing Model), which is the system risk pricing model. In the CAPM model, beta coefficient is a parameter. It can be used to measure the risk of the underlying asset, which is related to the fluctuations of the investment rate in the stock market. Based on the beta coefficient, we can research the system risk of the listed insurance companies in their investment business.The first part of this article is the introduction. It introduces the generalization of the risk on financial system and it also carries on the detailed elaboration of the harm of the global financial markets. Because of the serious effect of the systemic risk, there is constant exploration and search for finding effective ways to warn and predict the happening of the systemic risk and reduce the possibility of loss. So the. second context in this part introduces the effective steps of risk management, especially the effective measures for warning the systemic risk.The second part of the article is the literature review of the article. In this part, at first it reviews the development of systematic risk measurement tools, then it introduces the history of the research of beta coefficient in the western countries. The last thing in this part is the research achievement and difficult of beta coefficient in China,In the third part, it focuses on introducing the CAPM model and its framework, which is the theoretical basis of the empirical part.The fourth part, the part of the empirical study, will use two kinds of models to estimate the beta coefficient. The first one of empirical study is using the most basic unary linear regression equation, and the second one uses the CAPM model. At last, it will conclude and analysis the results.The fifth part explores what China’s life insurance companies should do to manage the systemic risk. They can establish an early-warning system, make full use of reinsurance mechanism and draw lessons from the United States regulatory measures and so on.The innovation of this dissertation is not using the solution of models to estimate the return or the future price of the stock, but just using the solution to measure the system risk of insurance companies in stock market and the relationship of the insurance companies’return and the market return.The main weaknesses of this dissertation are as follows:First, when it is measured the systemic risk, there are just two parameters, one of them is the return of the whole stock market and the other one is the return of the insurance companies. It is difficult to realize whether there will be other parameters which will influence the risk of the companies. Second, when it is measured the risk of Chinese insurance companies, the relationship of the returns is low and it will be concluded that the companies has less relationship with the whole market, and it will has less systemic risk. Third, it is hard to find a way to test whether theβ coefficient estimation is effectiveness or not.