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The efficiency of mutual funds

Author

Listed:
  • Javier Vidal-García

    (Universidad de Valladolid)

  • Marta Vidal

    (Universidad Complutense de Madrid)

  • Sabri Boubaker

    (Groupe ESC Troyes en Champagne
    Vietnam National University)

  • Majdi Hassan

    (École Supérieure des Sciences Economiques et Commerciales de Tunis (ESSEC Tunis))

Abstract

This paper analyzes the short-term market efficiency of the mutual fund industry around the world. Using a unique database of worldwide domestic equity funds, it employs a parametric (regression model) and non-parametric (data envelopment analysis (DEA) model) approaches to establish a relation between cost (expense ratio, turnover, loads, and risk) and benefit (return) of mutual funds. The empirical results of the parametric approach show a statistically significant negative relationship between expenses and risk-adjusted performance across countries. When we reexamine this relationship using a non-parametric approach, we show, in contrast to our previous result, a positive relationship between expenses and risk-adjusted performance. Thus, using the DEA methodology, we find strong evidence that equity mutual funds around the world are approximately mean–variance efficient.

Suggested Citation

  • Javier Vidal-García & Marta Vidal & Sabri Boubaker & Majdi Hassan, 2018. "The efficiency of mutual funds," Annals of Operations Research, Springer, vol. 267(1), pages 555-584, August.
    • Handle: RePEc:spr:annopr:v:267:y:2018:i:1:d:10.1007_s10479-017-2429-z
    DOI: 10.1007/s10479-017-2429-z
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    More about this item

    Keywords

    Mutual funds; Portfolio efficiency; Data envelopment analysis; Multiple criteria decision;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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