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Enhancement of equity portfolio performance using data envelopment analysis

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  • Pätäri, Eero
  • Leivo, Timo
  • Honkapuro, Samuli

Abstract

This paper examines the applicability of data envelopment analysis (DEA) as a basis of selection criteria for equity portfolios. It is the first DEA application for constructing a combined equity investment strategy that aims to integrate the benefits of both value investing and momentum investing. The 3-quantile portfolios are composed of a comprehensive sample of Finnish non-financial stocks based on their DEA efficiency scores that are calculated using three variants of DEA models (the constant returns-to-scale, the super-efficiency, and the cross-efficiency models). The performance of portfolios is evaluated on the basis of the average return and several risk-adjusted performance metrics throughout the 1994–2010 sample period.

Suggested Citation

  • Pätäri, Eero & Leivo, Timo & Honkapuro, Samuli, 2012. "Enhancement of equity portfolio performance using data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 220(3), pages 786-797.
    • Handle: RePEc:eee:ejores:v:220:y:2012:i:3:p:786-797
    DOI: 10.1016/j.ejor.2012.02.006
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