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The Pure-Play Cost of Equity for Insurance Divisions

Larry A. Cox and Gary L. Griepentrog
The Journal of Risk and Insurance
Vol. 55, No. 3 (Sep., 1988), pp. 442-452
DOI: 10.2307/253253
Stable URL: http://www.jstor.org/stable/253253
Page Count: 11
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Pure-Play Cost of Equity for Insurance Divisions
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Abstract

The pure-play method allows estimation of the cost of equity for corporate divisions not having publicly traded equity via the use of market data for competitors. In this study, two pure-play models previously proposed in the financial literature are tested for accuracy using a sample of multiple division insurers. A new model, adjusted for the unique characteristic of insurance underwriting leverage, is developed and tested. The results provide initial evidence about the feasibility of using the pure-play method within the data limitations applicable to the insurance industry.

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