Non-parametric frontier estimates of mutual fund performance using C- and L-moments: Some specification tests

Abstract

a b s t r a c tThere is a burgeoning literature using non-parametric frontier methods to measure mutual fund performance. These articles measure the relationship between the various characteristics (mainly return information and some costs of ownership) of these specialized financial products to establish a ranking using some efficiency measure. We argue in favor of the use of the shortage function, which is compatible with general investor preferences, and question some of the often maintained hypotheses in this line of research. The empirical part employs a large database of US and European mutual funds to offer extensive tests of the underlying modeling assumptions using various frontier estimators.

Do ethics imply persistence? The case of Islamic and socially responsible funds

“…As indicated by Kerstens et al (2011b), the theoretical foundations of modern portfolio theorywhich combine the expected return and variance data to assess performance-have been subject to criticisms, from both theoretical and applied points of view including, for instance, strong assumptions on probability distributions and Von Neumann-Morgenstern utility functions. Since the foundations of traditional performance measurement were established, a vast literature has emerged on portfolio performance measurement.…”

“…This literature has moved gradually from total-risk foundations to performance indexes (where returns in excess of the risk-free rate are compared to some risk measure (Kerstens et al, 2011b). However, in the particular (and relevant) case of mutual funds, there is still no universally accepted assessment approach to measure their performance.…”

“…As a result of these advantages, since the seminal paper of Murthi et al (1997) was published, the number of contributions in this particular field has grown remarkably, some of which have recently been reviewed by Brandouy et al (2012), Glawischnig and Sommersguter-Reichmann (2010) and Kerstens et al (2011a). According to Brandouy et al (2012), this growing literature can be classified in the following categories: (i) models directly transposed from production theory; (ii) models combining traditional performance measures such as those referred to above with additional dimensions; (iii) models directly transposed from portfolio theory; (iv) hedonic price models.…”

Data envelopment analysis in financial services: a citations network analysis of banks, insurance companies and money market funds

“…The authors show that a DEA-based index cannot replace financial performance indexes; however, these types of indexes provide new insights into the performance measurement of alternative investment funds. The paper by Kerstens2011 (Kerstens et al 2011) is motivated by specification issues surrounding applications of non-parametric frontier models, for measuring the performance of show that, with adequate data sets, the classic DEA model can be an effective tool to compute the portfolio efficiency in their performance assessments. This study confirms the effectiveness and practicality of the DEA method for assessing portfolio efficiency.…”

Evaluation of Performance of Investment Funds Based on Decision Models (DEA)

“…Efficiency is defined as devision of the real product (or service) to the expected product, while the effectiveness is described as the degree of goals of the organization that are received and productivity is a function of efficiency and effectiveness. The concept of productivity involves effectiveness and efficiency concepts (Kerstens, 2011) [11]. Efficiency is a mathematical concept that the cost of resources spent on business process is evaluated.…”