A Comparative Study On The Effects Of Market Crisis And Recessions On The Performance Of Defensive Sectors

Abstract

Research has shown that the performance of defensive sectors is consistent during a recession. However, whether such consistency still holds during periods of market crisis, which is considered an economic anomaly, is not immediately obvious. This paper proposes a further investigation into the performance of defensive sectors during a market crisis, particularly on the Johannesburg Stock Exchange (JSE). It will investigate whether these defensive sectors retained their non-cyclical nature during the recent market crisis (01/12/2007 – 31/08/2009) by comparing their performance during the crisis to their performance in South Africa’s most recent recession (1/12/1996 – 31/08/1999). Our investigation is carried out by assessing the betas of these sectors across both periods of focus. It then adds to the assessment of the betas by comparing the variances of the defensive sectors in both periods to determine whether there is a statistically significant difference. Our study is unique in that it proposes to investigate with the different market capitalisations (large, medium, and small) across the defensive sectors. The results of this study give conclusive evidence that defensive sectors do indeed remain non-cyclical during a market crisis. We can therefore give recommendations on switching to defensive strategies with greater certainty of the performance of defensive sectors during this economic anomaly.