Performance of mutual funds during the Covid-19 pandemic compared to the 2008 financial crisis

Abstract

Throughout this thesis we have investigated the American and Norwegian mutual funds’ performance by employing Jensen’s alpha (1968), Fama and French’s Threefactor model (1993), Carhart’s Four-factor model (1997), Fama and French’s Fivefactor model (2015), and further ran a bootstrap simulation similar to that of Kosowski et al. (2006) and Fama and French (2010). The purpose of this thesis is to examine how actively managed equity mutual funds have performed during the Covid-19 pandemic, which in this thesis is defined as the period between January 2019 to January 2021, compared to the 2008 financial crisis. Thus, we have evaluated performance on both the entire sample period consisting of data from 2007-2021, as well as sub-periods representing the two different crises where the market was in recession and a control period where the market was in expansion. We do not find evidence that U.S. mutual funds on average are able to generate abnormal returns in any of the time periods, nor possess the sufficient skills to cover their cost in the full period, the control period, or during the Covid-19 pandemic. However, during the financial crisis, we did find an increase of alpha in all models with evidence of some good skill among the fund managers. The alphas are only statistically significant with regards to the total period and the control period. We found, nevertheless, the opposite results in Norway. Our findings indicate that the alpha is significantly positive in the total period, and positive even during the financial crisis and the control period. In these periods the mutual fund managers did show evidence of skill after adjusting for luck. Despite this, the alpha is observed as negative through the Covid-19 pandemic, and our simulation indicates that this is due to poor skill.