Recessions and Equity Asset Allocations

Riepe, Mark W.
February 2002
Journal of Financial Planning;Feb2002, Vol. 15 Issue 2, p34
Academic Journal
On November 26, 2001, the National Bureau of Economic Research announced that a recession began the previous March. Since all previous United States recessions eventually ended, it seemed timely to examine haw large-and small-cap stocks behaved during and after recessionary periods. Small stocks have had higher returns, on avenge, during the last four recessions. The average returns for these different equity asset classes have not been all that bad during the last four recessions. If one accepts the proposition that the stock market is a leading indicator, this not-so-bad performance may have been boosted by exceptional performance in the last few months of the recession. History suggests that waiting until everything is rosy on the economic front (that is, when the recovery is readily apparent) increases the likelihood that one will miss out on a meaningful portion of the robust returns, and those returns are greatest in the smaller stock categories. However, investors must pursue strategies such as this one with caution. Predicting recessions is difficult and, because every recession is different, there are certainly no guarantees as to how any group of stocks will react.


Related Articles

  • Here's What Drives Me Crazy. Carlson, Charles B. // DRIP Investor;Jul2014, Vol. 23 Issue 7, p1 

    The author discusses the issues of investing that he finds driving him crazy. He mentions that such issues include an investor's prediction of a recession, affirmation of a need for a higher yield with one's stocks, and the acquisition of only low-priced stocks. He stresses that questioning the...

  • The New Year Brings Change and Challenge. Therein Lies Opportunity.  // Bank Investment Consultant;Feb2001, Vol. 9 Issue 2, p12 

    Focuses on the efforts of investors to safeguard their investment portfolios while spying alternative investments. Fear of recession and a mind-bending downslide in the technology sector; Improvement of on-line trading activities; Development of more comprehensive asset allocation strategies.

  • When the bulls stop running.  // Finweek;3/22/2007, p57 

    The article focuses on the move of investors concerning wealth preservation on the local equity market in South Africa. It states that asset managers are now focusing on the diversified asset allocation funds with a goal of apportioning funds across a wide range of different assets to lower the...

  • Optimal portfolio choice in the presence of domestic systemic risk: empirical evidence from stock markets. Prokopczuk, Marcel // Decisions in Economics & Finance;Nov2011, Vol. 34 Issue 2, p141 

    In this paper, we empirically investigate the consequences of domestic systemic risk for stock market investors. To tackle this issue, we consider two different investment strategies. One strategy is to be 'crisis-conscious', i.e., taking the possibility of systemic events into account, and the...

  • Lesson Learned: Allocation Funds Rebound. Glover, Hannah // American Banker;3/22/2007, Vol. 172 Issue 56, p7 

    The article examines the benefits of using asset allocation funds. The article points out that industry executives are using the stock market's unstable trend in 2007 as a reminder to financial advisers, and their clients, that asset allocation funds are relevant, because they are designed to...

  • TESTS OF TECHNICAL TRADING RULES IN THE ASIAN-PACIFIC EQUITY MARKETS: A BOOTSTRAP APPROACH. Lento, Camillo // Academy of Accounting & Financial Studies Journal;Jun2007, Vol. 11 Issue 2, p51 

    This study examines the effectiveness of nine technical trading rules in eight Asian-Pacific equity markets for periods ranging from January 1987 to November 2005. The annualized returns from each trading rule are compared to a naive buy-and-hold strategy to determine profitability. The TSEC,...

  • Appendix A: Assumptions of Computations of Portfolio Longevity.  // Journal of Financial Planning;Aug1996, Vol. 9 Issue 4, p66 

    The article discusses about some assumptions of Computations of Portfolio Longevity. Some assumptions were necessary for preparation of the "portfolio longevity" charts in this article. During the first year, according to Ibbotson data, stocks returned ten percent, and bonds returned five...

  • Expected returns, correlations, and optimal asset allocations. Waggle, Doug; Gisung Moon // Financial Services Review;Fall2005, Vol. 14 Issue 3, p253 

    With increasing uncertainties in financial markets, individual investors now face difficult asset allocation choices. This article provides a framework for this deliberation by examining the marginal effects of the key input variables in the asset allocation for a portfolio of stocks, bonds, and...

  • Are Stocks Still Good for the Long Run? Fox, Justin // Time International (Atlantic Edition); 

    The article discusses the question of whether investors should pursue an investment strategy that includes buying stocks. Between March 2000 and March 2009, stock investors have lost more than 50% of the value of stocks, the article states. Also discussed is the prudence of carrying stocks in an...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics