Crisis Sentiment in the U.S. Insurance Sector

We use internet search volume data to measure idiosyncratic and market-wide crisis sentiment to explain insurer stock return volatility. We find that market-level crisis sentiment was a highly significant predictor of stock return volatility of U.S. insurers between 2006 and 2010. Higher levels of crisis sentiment are associated with higher levels of price uncertainty. This effect is strongest for insurers with less exposure to the adverse effects of the financial crisis. Further, crisis sentiment also affects the cross-section of movements in insurer stock prices. Our results imply that investors exited insurer stocks mainly due to irrational crisis sentiment rather than a rational assessment of the insurers' actual exposure to the crisis.