The mutual fund industry has doubled in size in the last ten years alone, whilst the literature generally finds that it underperforms compared to indexes (Alp, 2009). Many researchers are devoted to solve this puzzle, trying to find an explanation that shows that mutual funds can be effective. One strand of literature attempts to do so by testing mutual fund performance during varying market conditions. Kosowoski (2001) found that mutual funds can add value during recessions, however, de Souze and Lynch (2012) found contradicting evidence for different fund styles. This paper, therefore, sets out investigate whether mutual funds of distinct styles are able to add value during up or down markets, since the literature seems to be inconclusive. It firstly tested benchmark adjusted performance and found that more than half of the nine fund styles outperformed their benchmark. A surprising result, which has not been found in earlier research. It then tested risk adjusted performance controlled for bull and bear markets, with the use of Carhart’s (1997) four-factor model. The results found suggest that mutual fund managers are unable to alter their market exposure during varying market conditions meaningfully. Moreover, mutual funds of any style on average, when adjusted for common risk factors, are unable to show signs of outperformance, regardless of any market condition.

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Thesis Advisor Bliek, R. de
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Series Business Economics
Pel, G.L.A. (2019, July 17). Performance of distinct mutual fund styles during bull and bear markets. Business Economics. Retrieved from