Do Equity Mutual Funds Really Perform Less Poorly in Bad Times? Evidence from US and Australia

34 Pages Posted: 25 Aug 2012

See all articles by Tariq H. Haque

Tariq H. Haque

University of Adelaide; Financial Research Network (FIRN)

Paskalis Glabadanidis

University of Adelaide Business School; Financial Research Network (FIRN)

Date Written: August 24, 2012

Abstract

We find that in Australia, Mid/Small-cap funds often have significantly positive net alphas and this is driven by their strong performance in down-markets. In contrast Large-cap funds often have significantly negative net alphas and this is driven by their relatively poor performance in up-markets which cannot be offset by their performance in down-markets. We also find that Australian Large-cap funds generally reduce their market betas in down-markets while Australian Mid/Small-cap funds generally increase their market betas in down-markets. In the US, funds in all categories generally perform strongly in up-markets but perform poorly in down-markets which leads to negative unconditional alphas being observed. We also find that many US mutual funds increase their beta in down-markets which contributes to their poor performance in down-markets. In the US, funds also tend to perform relatively strongly in non-recessions but poorly in recessions. Despite the fact that these funds reduce their market betas in recessions they still do not achieve positive alphas in those periods.

Keywords: Mutual funds, Unconditional performance evaluation, Conditional performance evaluation

JEL Classification: E44, G20

Suggested Citation

Haque, Tariq H. and Glabadanidis, Paskalis, Do Equity Mutual Funds Really Perform Less Poorly in Bad Times? Evidence from US and Australia (August 24, 2012). 25th Australasian Finance and Banking Conference 2012. Available at SSRN: https://ssrn.com/abstract=2135383 or http://dx.doi.org/10.2139/ssrn.2135383

Tariq H. Haque (Contact Author)

University of Adelaide ( email )

10 Pulteney St, Adelaide Busines School
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Paskalis Glabadanidis

University of Adelaide Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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