Author(s): Raja Bouzouita, Mihaela Craioveanu
This paper investigates the impact of the 2007-2009 financial crisis on the volatility of insurance stock returns and on the correlation of the insurance stock returns with the market. In particular, we use a DCC GARCH model that allows for structural breaks in the volatility estimation in order to show the evolution of the insurance stock return volatility and their correlation with the overall market over time. Using daily stock returns on a sample of 208 insurance companies from 1990 until 2011, we find that insurance stock return volatilities increased significantly during the financial crisis but eventually reverted to pre-crisis volatility levels. The crisis also increased the correlation of insurance stocks with the market. The analysis of insurance segments reveals that the correlations with the market exhibit different patterns across segments during the financial crisis.