Document Type



Doctor of Philosophy (PhD)


Business Administration

First Advisor's Name

Karen Paul

First Advisor's Committee Title

Committe Chair

Second Advisor's Name

Sungu Armagan

Third Advisor's Name

William Newburry

Fourth Advisor's Name

Paulette Johnson


business cycle, CAPM, Carhart, switching regression, SRI, mutual fund, socially responsible

Date of Defense



The current study applies a two-state switching regression model to examine the behavior of a hypothetical portfolio of ten socially responsible (SRI) equity mutual funds during the expansion and contraction phases of US business cycles between April 1991 and June 2009, based on the Carhart four-factor model, using monthly data. The model identified a business cycle effect on the performance of SRI equity mutual funds. Fund returns were less volatile during expansion/peaks than during contraction/troughs, as indicated by the standard deviation of returns. During contraction/troughs, fund excess returns were explained by the differential in returns between small and large companies, the difference between the returns on stocks trading at high and low Book-to-Market Value, the market excess return over the risk-free rate, and fund objective. During contraction/troughs, smaller companies offered higher returns than larger companies (ci = 0.26, p = 0.01), undervalued stocks out-performed high growth stocks (hi = 0.39, p i = 0.01, p = 0.02). The hypothetical SRI portfolio was less risky than the market (bi = 0.74, p i = -0.01, p = 0.03). The hypothetical SRI portfolio exhibited similar risk as the market (bi = 0.93, p