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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

Author

Listed:
  • Premachandra, I.M.
  • Zhu, Joe
  • Watson, John
  • Galagedera, Don U.A.

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.

Suggested Citation

  • Premachandra, I.M. & Zhu, Joe & Watson, John & Galagedera, Don U.A., 2012. "Best-performing US mutual fund families from 1993 to 2008: Evidence from a novel two-stage DEA model for efficiency decomposition," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3302-3317.
    • Handle: RePEc:eee:jbfina:v:36:y:2012:i:12:p:3302-3317
    DOI: 10.1016/j.jbankfin.2012.07.018
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    More about this item

    Keywords

    Data envelopment analysis efficiency decomposition; Operational management efficiency; Portfolio management efficiency; Efficiency of mutual fund families;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models

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