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Do Mutual Funds Outperform During Recessions? International (Counter-) Evidence

University of St.Gallen, School of Finance Research Paper No. 2014/15

57 Pages Posted: 19 Sep 2014 Last revised: 5 Jun 2015

See all articles by Christopher Fink

Christopher Fink

University of Mannheim - Finance Area; University of Mannheim - Graduate School of Economic and Social Sciences

Katharina Raatz

University of Mannheim

Florian Weigert

University of St. Gallen - School of Finance

Date Written: May 29, 2015

Abstract

Recent academic research predicts that (i) equity mutual funds have a systematically better performance during periods of economic downturn and (ii) investors are willing to pay high fees for funds that provide recession insurance. In this paper, we test these hypotheses using international fund data from 16 different countries. Surprisingly, we obtain contrary results: Mutual funds underperform by a statistically significant -0.4% during months of economic downturn and funds with high recession alphas charge low fees to investors. We provide evidence that recession underperformance can be explained by fund managers' forced trading in an illiquid market environment.

Keywords: International Mutual Fund Performance, Mutual Funds, Recession

JEL Classification: F30, G01, G11, G15, G23

Suggested Citation

Fink, Christopher and Raatz, Katharina and Weigert, Florian, Do Mutual Funds Outperform During Recessions? International (Counter-) Evidence (May 29, 2015). University of St.Gallen, School of Finance Research Paper No. 2014/15. Available at SSRN: https://ssrn.com/abstract=2497680 or http://dx.doi.org/10.2139/ssrn.2497680

Christopher Fink

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

University of Mannheim - Graduate School of Economic and Social Sciences ( email )

D7, 27
Mannheim, 68131
Germany

Katharina Raatz

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Florian Weigert (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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