Catastrophic Events and Retroactive Liability Insurance: The Case of the MGM Grand Fire

This study examines the capital market response to the MGM Grand fire and to the announcement of MGM Grand's purchase of $170 million in retroactive liability insurance. The information transfer effect is also examined. Event study research methods support earlier findings that the news of the fire had an adverse effect on MGM's security price. Security prices of industry co-member firms, however, experienced a negative information transfer (positive returns) on the date of the fire, a result consistent with intra-industry shifts in market share. Shifts in systematic risks were not documented for MGM or a portfolio of industry co-members.