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THE PERFORMANCE OF U. S. DOMESTIC EQUITY MUTUAL FUNDS DURING RECENT RECESSIONS

Dr. Zakri Y. Bello

Central Connecticut State University, U.S.A.

 

ABSTRACT

In this study, I investigate the performance of five categories of U.S. domestic equity mutual funds during the recessions of 1990 and 2001 and during the 12 months following each recession. I show that recessions identified by the National Bureau of Economic Research (NBER) are not all the same with regard to their impact on the behavior of common stock prices, and that investment strategies based on a fixed rule of thumb are likely to lead to disastrous outcomes. For example, the rule of thumb which dictates picking small capitalization common stocks in the ensuing 12 months from the end of a recession produced good results after the recession of 1990, but produced disappointment results after the recession of 2001. During the recession of 1990, stock-mutual fund performance was higher in the post recession period, which is in line with past research on the behavior of common stock prices. The funds as a group earned higher returns than the S&P 500 index during the recession and after. However, during the recession of 2001, four of the five mutual fund categories and the S&P 500 index realized negative returns during the recession. Moreover, all of the fund categories and the market realized negative returns in the 12 months following the recession.

Key Words: mutual funds, performance evaluation, recessions, economics cycles, market efficiency, anomalies

JEL Codes: G2, G14, G17, G23, N2