Researcher ORCID Identifier

0009-0003-7632-0510

Graduation Year

2025

Date of Submission

12-2024

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Murat Binay

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Abstract

This thesis examines the performance of two distinct sector-based portfolios — psychologically-based and non-psychologically-based — during three major economic downturns: the Dotcom Bubble (2000), the Great Recession (2008), and the COVID-19 Recession (2020). The psychologically-based portfolio includes industries like alcohol, beauty, and streaming services, which appeal to consumers seeking comfort or affordable indulgences during financial uncertainty. In contrast, the non-psychologically-based portfolio comprises sectors like healthcare and consumer staples, which provide essential goods and services regardless of economic conditions. Through regression analysis, this study evaluates the relative returns of both portfolios and compares them with each other. The results suggest that while the psychologically-based portfolio exhibited slightly higher average excess returns, there was no statistically significant difference between the performance of the psychological-based and non-psychologically-based portfolios. However, both portfolios demonstrated low beta, were comprised of large-cap and value stocks, and proved effective in lowering risk, making them viable hedging strategies during recessions. These findings have important implications for hedge funds and institutional investors seeking to protect their portfolios from volatility during economic downturns. Future research may explore how real-time data and different portfolio construction methods can further refine recession-proof investing strategies.

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