Best-performing US mutual fund families from 1993 to 2008: Evidence from a novel two-stage DEA model for efficiency decomposition

I M Premachandra, Joe Zhu, John Watson, Don Upatissa Asoka Galagedera

Research output: Contribution to journalArticleResearchpeer-review

38 Citations (Scopus)

Abstract

When analyzing relative performance, especially at the institutional level, the traditional data envelopment analysis (DEA) models do not recognize vastly different and important activities as separate functions and therefore cannot identify which function may be the main source of inefficiency. We propose a novel two-stage DEA model that decomposes the overall efficiency of a decision-making unit into two components and demonstrate its applicability by assessing the relative performance of 66 large mutual fund families in the US over the period 1993-2008. By decomposing the overall efficiency into operational management efficiency and portfolio management efficiency components, we reveal the best performers, the families that deteriorated in performance, and those that improved in their performance over the sample period. We also make frontier projections for poorly performing mutual fund families and highlight how the portfolio managers have managed their funds relative to the others during financial crisis periods.
Original languageEnglish
Pages (from-to)3302 - 3317
Number of pages16
JournalJournal of Banking and Finance
Volume36
Issue number12
DOIs
Publication statusPublished - 2012

Cite this

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abstract = "When analyzing relative performance, especially at the institutional level, the traditional data envelopment analysis (DEA) models do not recognize vastly different and important activities as separate functions and therefore cannot identify which function may be the main source of inefficiency. We propose a novel two-stage DEA model that decomposes the overall efficiency of a decision-making unit into two components and demonstrate its applicability by assessing the relative performance of 66 large mutual fund families in the US over the period 1993-2008. By decomposing the overall efficiency into operational management efficiency and portfolio management efficiency components, we reveal the best performers, the families that deteriorated in performance, and those that improved in their performance over the sample period. We also make frontier projections for poorly performing mutual fund families and highlight how the portfolio managers have managed their funds relative to the others during financial crisis periods.",
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Best-performing US mutual fund families from 1993 to 2008: Evidence from a novel two-stage DEA model for efficiency decomposition. / Premachandra, I M; Zhu, Joe; Watson, John; Galagedera, Don Upatissa Asoka.

In: Journal of Banking and Finance, Vol. 36, No. 12, 2012, p. 3302 - 3317.

Research output: Contribution to journalArticleResearchpeer-review

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