Do Life Insurance Stocks Provide Superior Returns?

Abstract

This paper examines the risk/return relationship for life insurance stock returns using CAPM-GARCH. Prior studies use the traditional CAPM and fail to find risk-adjusted returns. Utilizing CAPM-GARCH, we find life insurance stocks provided 7.96% risk adjusted returns for the period 1985-2003. For the sub periods 1991-1996 and 1997-2003, we find that life insurance stocks produced abnormal returns of 14.61% and 12.85% respectively. Based on these findings, we feel that financial analysts should recommend life insurance stocks for any well-diversified portfolio.

Keywords: Life Insurance Returns, GARCH, CAPM

JEL Classification: G22