Using Stock Return Data to Measure the Wealth Effects of Regulation: Additional Evidence from California's Proposition 103

In contrast to literature that has used the event study method to examine the stock market reaction to California's Proposition 103, we estimate the abnormal performance of both equally-weighted and value-weighted portfolios of securities. We also estimate a cross-sectional regression in value terms; that is, regressing the abnormal change in dollar value of the firm's equity against direct premiums written in automobile and other insurance lines in estimating relative exposure to Proposition 103. Results from the valueweighted portfolios indicate that Proposition 103 had little impact on the aggregate dollar value of the insurance industry. Cross-sectional regressions indicate that exposure, income, and size measures are not related to changes in firm value.