Modeling leakage in two-stage DEA models: An application to US mutual fund families

Don Upatissa Asoka Galagedera, John Watson, I M Premachandra, Yao Chen

Research output: Contribution to journalArticleResearchpeer-review

13 Citations (Scopus)

Abstract

This paper proposes a two-stage DEA model with leakage variables at stage 1 for assessing relative performance of decision making units. We refer to the output variables at the first stage that leave the two-stage system without entering the second stage as leakage variables. In addition to the leakage variables, the proposed model can handle multiple input and output variables at both stages and multiple intermediate variables. The concept of leakage variable adds a new dimension to two-stage DEA modeling. The applicability of the proposed model is demonstrated by assessing the performance of a sample of the US mutual fund families over the period 1999–2008 with operational management and portfolio management processes as the two stages of mutual fund operation. We consider total cash flow to investors (TCF) as the leakage variable. The results reveal that, over the sample period, modeling TCF increases discriminatory power of overall performance considerably. Moreover, we find consistent evidence over the sample period that small fund families are more likely to perform better than large fund families. This is not observed when TCF is not modeled as a leakage variable.
Original languageEnglish
Pages (from-to)62 - 67
Number of pages6
JournalOMEGA International Journal of Management Science
Volume61
DOIs
Publication statusPublished - 2016

Keywords

  • Data envelopment analysis
  • two-stage model
  • efficiency decomposition
  • Malmquist productivity index
  • mutual funds

Cite this

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title = "Modeling leakage in two-stage DEA models: An application to US mutual fund families",
abstract = "This paper proposes a two-stage DEA model with leakage variables at stage 1 for assessing relative performance of decision making units. We refer to the output variables at the first stage that leave the two-stage system without entering the second stage as leakage variables. In addition to the leakage variables, the proposed model can handle multiple input and output variables at both stages and multiple intermediate variables. The concept of leakage variable adds a new dimension to two-stage DEA modeling. The applicability of the proposed model is demonstrated by assessing the performance of a sample of the US mutual fund families over the period 1999–2008 with operational management and portfolio management processes as the two stages of mutual fund operation. We consider total cash flow to investors (TCF) as the leakage variable. The results reveal that, over the sample period, modeling TCF increases discriminatory power of overall performance considerably. Moreover, we find consistent evidence over the sample period that small fund families are more likely to perform better than large fund families. This is not observed when TCF is not modeled as a leakage variable.",
keywords = "Data envelopment analysis, two-stage model, efficiency decomposition, Malmquist productivity index, mutual funds",
author = "Galagedera, {Don Upatissa Asoka} and John Watson and Premachandra, {I M} and Yao Chen",
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Modeling leakage in two-stage DEA models: An application to US mutual fund families. / Galagedera, Don Upatissa Asoka; Watson, John; Premachandra, I M; Chen, Yao.

In: OMEGA International Journal of Management Science, Vol. 61, 2016, p. 62 - 67.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - Modeling leakage in two-stage DEA models: An application to US mutual fund families

AU - Galagedera, Don Upatissa Asoka

AU - Watson, John

AU - Premachandra, I M

AU - Chen, Yao

PY - 2016

Y1 - 2016

N2 - This paper proposes a two-stage DEA model with leakage variables at stage 1 for assessing relative performance of decision making units. We refer to the output variables at the first stage that leave the two-stage system without entering the second stage as leakage variables. In addition to the leakage variables, the proposed model can handle multiple input and output variables at both stages and multiple intermediate variables. The concept of leakage variable adds a new dimension to two-stage DEA modeling. The applicability of the proposed model is demonstrated by assessing the performance of a sample of the US mutual fund families over the period 1999–2008 with operational management and portfolio management processes as the two stages of mutual fund operation. We consider total cash flow to investors (TCF) as the leakage variable. The results reveal that, over the sample period, modeling TCF increases discriminatory power of overall performance considerably. Moreover, we find consistent evidence over the sample period that small fund families are more likely to perform better than large fund families. This is not observed when TCF is not modeled as a leakage variable.

AB - This paper proposes a two-stage DEA model with leakage variables at stage 1 for assessing relative performance of decision making units. We refer to the output variables at the first stage that leave the two-stage system without entering the second stage as leakage variables. In addition to the leakage variables, the proposed model can handle multiple input and output variables at both stages and multiple intermediate variables. The concept of leakage variable adds a new dimension to two-stage DEA modeling. The applicability of the proposed model is demonstrated by assessing the performance of a sample of the US mutual fund families over the period 1999–2008 with operational management and portfolio management processes as the two stages of mutual fund operation. We consider total cash flow to investors (TCF) as the leakage variable. The results reveal that, over the sample period, modeling TCF increases discriminatory power of overall performance considerably. Moreover, we find consistent evidence over the sample period that small fund families are more likely to perform better than large fund families. This is not observed when TCF is not modeled as a leakage variable.

KW - Data envelopment analysis

KW - two-stage model

KW - efficiency decomposition

KW - Malmquist productivity index

KW - mutual funds

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