The Efficiency Evaluation of Mutual Fund Managers Based on Dara, Cara, Iara

Abstract

We evaluate the efficiency of mutual fund managers of 20 different classes of management styles to identify the most efficient strategies and to propose an optimal pattern in selecting the funds by investors. We collect monthly data of 17,686 US mutual funds for a five-year period 2005–2010 to minimize the impact of survivorship bias and use Data Envelopment Analysis (DEA) model to evaluate the mutual fund performance. The set of considered inputs comprised “variance”, representing the mutual fund risk, and “turnover, expense ratio and loads indicators”, reflecting the mutual fund costs and fees. Two kinds of outputs are taken into account by our DEA model, “portfolio return” and “stochastic dominance indicators”. As a unique contribution, we state the benefits of the DEA approach in the DARA, CARA, and IARA framework, and evaluate the efficiency of mutual funds based on fund strategies as well as the performance of best mutual funds among their group. The evidence shows that the efficiency scores of technical, management, and scale are respectively 0.81, 0.921, and 0.874 for the DARA model, while the efficiency scores of two models of CARA and IARA are negligible. Also, we rank each management strategy in any model based on two methods – the number of referencing and the weighted value so that the managers of inefficient strategies must pattern the managers’ ability of reference (efficient) strategies to improve their efficiency on the fund market in future.

Precious Metal Mutual Fund Performance Evaluation: A Series Two-Stage DEA Modeling Approach

“…Recent contributions to the literature for the measurement of portfolio efficiency are the studies by Tarnaud and Leleu (2018) and Zhou et al (2018). Baghdadabad et al (2013) evaluated the efficiency of mutual fund managers followed by Banker et al (2016) and recently by Andreu et al (2019). For recent reviews on DEA, the interested reader is referred to Glawischnig and Sommersguter-Reichmann (2010), Tsolas (2014), Basso and Funari (2016), and Premachandra et al (2016).…”

Cash management and performance of index mutual funds

“…Previous studies analyzing index mutual funds have focused on abnormal trading and returns of index funds during index rebalancing (Chen et al , 2006; Green and Jame, 2011). Other articles have addressed the success of indexing strategies through their efficiency (Baghdadabad et al , 2013) and by measuring the relative outperformance of index funds compared to actively-managed funds (Frino and Gallagher, 2001; Bogle, 2002). In the same vein, other authors have observed the substitutability of index mutual funds and other passive investment vehicles such as exchange-traded funds (Agapova, 2011), concluding that index funds provide investors with higher risk-adjusted returns (Elton et al , 2002; Kostovetsky, 2003; Chang and Krueger, 2010).…”