Abstract:

This study examines the impact of exchange rate and interest changes on stock returns and volatility of Turkish insurance companies using the EGARCH model for the period of 01/01/2009 to 15/04/2020. The results show: (i) while interest rate has a negative and significant effect on the conditional stock return, its effect on the volatility of stock returns of insurance companies is limited (ii) however, the exact opposite is true for the exchange rate risk. The exchange rate risk exerts an important impact on the volatility of insurance stock returns but it has no effect on the mean stock returns of insurance companies (iii) the findings also indicate that the volatility of insurance stock returns are highly persistent over time and they are more sensitive to old news than recent surprises (iv) positive and negative news have an asymmetric effect on volatility implying that positive innovations (good news such as a market) have a larger impact on current conditional variance (current volatility of returns) than negative innovations (bad news such as market stagnation) of the same magnitude (v) finally, the volatility of insurance portfolio’s and insurance companies’ stock returns has risen significantly during the financial crisis of 2008 compared to the rest of the sample period.

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