The effect of the business cycle on the performance of socially responsible equity mutual funds

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 (h i = 0.39, p <0.0001), and funds with growth objectives out-performed funds with other objectives (oi = 0.01, p = 0.02). The hypothetical SRI portfolio was less risky than the market (bi = 0.74, p <0.0001). During expansion/peaks, fund excess returns were explained by the market excess return over the risk-free rate, and fund objective. Funds with other objectives, such as balanced funds and income funds out-performed funds with growth objectives (oi = −0.01, p = 0.03). The hypothetical SRI portfolio exhibited similar risk as the market (bi = 0.93, p <0.0001). The SRI investor adds a third criterion to the risk and return trade-off of traditional portfolio theory. This constraint is social performance. The research suggests that managers of SRI equity mutual funds may diminish value by using social and ethical criteria to select stocks, but add value by superior stock selection. The result is that the performance of SRI mutual funds is very similar to that of the market. There was no difference in the value added among secular SRI, religious SRI, and vice screens.

Mechanisms governing the eyewall replacement cycle in numerical simulations of tropical cyclones

Eyewall replacement cycle (ERC) is frequently observed during the evolution of intensifying Tropical Cyclones (TCs). Although intensely studied in recent years, the underlying mechanisms of ERC are still poorly understood, and the forecast of ERC remains a great challenge. To advance our understanding of ERC and provide insights in improvement of numerical forecast of ERC, a series of numerical simulations is performed to investigate ERCs in TC-like vortices on a f-plane. The simulated ERCs possess key features similar to those observed in real TCs including the formation of a secondary tangential wind maximum associated with the outer eyewall. The Sawyer-Eliassen equation and tangential momentum budget analyses are performed to diagnose the mechanisms underlying the secondary eyewall formation (SEF) and ERC. Our diagnoses reveal crucial roles of outer rainband heating in governing the formation and development of the secondary tangential wind maximum and demonstrate that the outer rainband convection must reach a critical strength relative to the eyewall before SEF and the subsequent ERC can occur. A positive feedback among low-level convection, acceleration of tangential winds in the boundary layer, and surface evaporation that leads to the development of ERC and a mechanism for the demise of inner eyewall that involves interaction between the transverse circulations induced by eyewall and outer rainband convection are proposed. The tangential momentum budget indicates that the net tendency of tangential wind is a small residual resultant from a large cancellation between tendencies induced by the resolved and sub-grid scale (SGS) processes. The large SGS contribution to the tangential wind budget explains different characteristics of ERC shown in previous numerical studies and poses a great challenge for a timely correct forecast of ERC. The sensitivity experiments show that ERCs are strongly subjected to model physics, vortex radial structure and background wind. The impact of model physics on ERC can be well understood with the interaction among eyewall/outer rainband heating, radilal inflow in the boundary layer, surface layer turbulent processes, and shallow convection in the moat. However, further investigations are needed to fully understand the exhibited sensitivities of ERC to vortex radial structure and background wind.

Mechanisms Governing the Eyewall Replacement Cycle in Numerical Simulations of Tropical Cyclones

Eyewall replacement cycle (ERC) is frequently observed during the evolution of intensifying Tropical Cyclones (TCs). Although intensely studied in recent years, the underlying mechanisms of ERC are still poorly understood, and the forecast of ERC remains a great challenge. To advance our understanding of ERC and provide insights in improvement of numerical forecast of ERC, a series of numerical simulations is performed to investigate ERCs in TC-like vortices on a f-plane. The simulated ERCs possess key features similar to those observed in real TCs including the formation of a secondary tangential wind maximum associated with the outer eyewall. The Sawyer-Eliassen equation and tangential momentum budget analyses are performed to diagnose the mechanisms underlying the secondary eyewall formation (SEF) and ERC. Our diagnoses reveal crucial roles of outer rainband heating in governing the formation and development of the secondary tangential wind maximum and demonstrate that the outer rainband convection must reach a critical strength relative to the eyewall before SEF and the subsequent ERC can occur. A positive feedback among low-level convection, acceleration of tangential winds in the boundary layer, and surface evaporation that leads to the development of ERC and a mechanism for the demise of inner eyewall that involves interaction between the transverse circulations induced by eyewall and outer rainband convection are proposed. The tangential momentum budget indicates that the net tendency of tangential wind is a small residual resultant from a large cancellation between tendencies induced by the resolved and sub-grid scale (SGS) processes. The large SGS contribution to the tangential wind budget explains different characteristics of ERC shown in previous numerical studies and poses a great challenge for a timely correct forecast of ERC. The sensitivity experiments show that ERCs are strongly subjected to model physics, vortex radial structure and background wind. The impact of model physics on ERC can be well understood with the interaction among eyewall/outer rainband heating, radilal inflow in the boundary layer, surface layer turbulent processes, and shallow convection in the moat. However, further investigations are needed to fully understand the exhibited sensitivities of ERC to vortex radial structure and background wind.