Abstract

http://ssrn.com/abstract=926971
 
 

References (173)



 
 

Citations (31)



 


 



Do Mutual Funds Perform When it Matters Most to Investors? US Mutual Fund Performance and Risk in Recessions and Expansions


Robert Kosowski


Imperial College Business School; University of Oxford, Oxford-Man Institute of Quantitative Finance

August 1, 2006


Abstract:     
This paper shows that the stylized fact of average mutual fund underperformance documented in the literature stems from expansion periods when funds have statistically significant negative risk-adjusted performance and not recession periods when risk-adjusted fund performance is positive. These results imply that traditional unconditional performance measures understate the value added by active mutual fund managers in recessions, when investors' marginal utility of wealth is high. The risk-adjusted performance (or alpha) difference between recession and expansion periods is statistically and economically significant at 3 to 5 percent per year. Our findings are based on a novel multi-variate conditional regime-switching performance methodology used to carry out one of the most comprehensive examinations of the performance of US domestic equity mutual funds in recessions and expansions from 1962 to 2005. The findings are robust to the choice of the factor model (including bond and liquidity factor extensions), the use of NBER business cycle dates, fund load, turnover, expenses and percentage of equity holdings.

Number of Pages in PDF File: 53

Keywords: mutual funds, portfolio choice, asset pricing, asymmetric information, business cycles, Markov-switching models

JEL Classification: C22, D8, E32, G11, G12, G23

working papers series


Download This Paper

Date posted: August 30, 2006 ; Last revised: September 2, 2011

Suggested Citation

Kosowski, Robert, Do Mutual Funds Perform When it Matters Most to Investors? US Mutual Fund Performance and Risk in Recessions and Expansions (August 1, 2006). Available at SSRN: http://ssrn.com/abstract=926971 or http://dx.doi.org/10.2139/ssrn.926971

Contact Information

Robert Kosowski (Contact Author)
Imperial College Business School ( email )
South Kensington Campus
Exhibition Road
London SW7 2AZ, DC SW7 2AZ
United Kingdom
+442075943294 (Phone)
HOME PAGE: http://www3.imperial.ac.uk/people/r.kosowski
University of Oxford, Oxford-Man Institute of Quantitative Finance ( email )
Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom
Feedback to SSRN


Paper statistics
Abstract Views: 5,437
Downloads: 1,634
Download Rank: 4,891
References:  173
Citations:  31

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.265 seconds