International Journal of Financial Management

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Benchmarking of Indian Sectoral Mutual Funds - A Non-Separable Undesirable Output Model


Affiliations
1 Government College of Engineering and Leather Technology, Kolkata, West Bengal, India
     

   Subscribe/Renew Journal


Performance analysis of mutual funds is usually made on the basis of return-risk framework where return is considered an output indicator and risk is considered as an input indicator. However, portfolio risk in actuality is a non-separable undesirable output and any effort to reduce it also causes a reduction in portfolio return. In view of this, the present paper uses a non-parametric nonseparable undesirable output model to evaluate the performance of 27 sectoral mutual fund schemes based on observations for the period July 2010 to June 2013. The USP of the present study is that return and risk are considered as both non-separable outcome of the process of investment. The results exhibit stability of mean efficiency scores across the observed years. Further, fund inefficiency mostly emerged from the input side and not from the output side.

Keywords

JEL Classification: C-61, D-21, G-23, Mutual Fund, Endogenous Benchmarking, DEA, Non-separability, Undesirable Output.
Subscription Login to verify subscription
User
Notifications
Font Size

  • Banker, R., Charnes, A., & Cooper, W. W. (1984). Some models for estimating technical and scale efficiency. Management Science, 30, 1078-092.

  • Basso, A., & Funari, S. (2003). Measuring the performance of ethical mutual funds: A DEA approach. Journal of the Operational Research Society, 54, 521-531.

  • Basso, A., & Funari, S. (2001). A data envelopment analysis approach to measure the mutual fund performance.

  • European Journal of Operational Research, 135, 477-492.

  • Bawa, V. S. (1975). Optimal rules for ordering uncertain prospects. Journal of Financial Economics, 2(1), 95-121.

  • Berg, S. A., Foresund, S. A., & Jansen, E. S. (1992). Malmquist indices of productivity growth during the deregulation of Norwegian Banking 1980-1989. Scandinavian Journal of Economics, 211-228.

  • Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring efficiency of decision making unit. European Journal of Operational Research, 429-444.

  • Daraio, C., & Simar, L. (2006). A robust nonparametric approach to evaluate and explain the performance of mutual funds. European Journal of Operational Research, 175, 516-542.

  • Fare, R., Grosskopf, S., Lovell, C. A. K., & Pasurka, C. (1989). Multilateral productivity comparisons when some outputs are undesirable: A non-parametric approach. The Review of Economics and Statistics, 71, 90-98.

  • Farrell, M. J. (1957). The measurement of productive efficiency. Journal of the Royal Statistical Society, Series A, General, 120(3), p.253, p.281.

  • Fishburn, P. C. (1977). Mean-risk analysis with risk associated with below-target returns. American Economic Review, 67(2), 116-126.

  • Golany, B., & Roll, Y. (1989). An application procedure for DEA. Omega, 1(3), 237-250.

  • Gregory, G. N., Komlan, S., & Joe, Z. (2005). Hedge fund performance appraisal using data envelopment analysis. European Journal of Operational Research, 164(2005), 555-571.

  • Hadar, J., & Russell, W. R. (1969). Rules for ordering uncertain prospects. American Economic Review, 59, 25-34.

  • Hanoch, G., & Levy, H. (1969). The efficiency analysis of choices involving risk. Review of Economic Studies, 36, 335-346.

  • Jensen, M. (1968). The performance of mutual funds in the period 1945-1964. Journal of Finance, 23, 389-416.

  • Klemkosky, R. C. (1973). The bias in composite performance measures. Journal of Financial and Quantitative Analysis, 8(3), 505-514.

  • Lintner, J. (1965). Security prices, risk and maximal gain from diversification. Journal of Finance, 30, 587-615.

  • Murthi, B., Choi, Y., & Desai, P. (1997). Efficiency of mutual funds and portfolio performance measurement: A non-parametric approach. European Journal of Operational Research, 98, 408-418.

  • Ray, S. C. (2004). Data envelopment analysis - Theory and Techniques for Economics and Operations Research, Cambridge University Press, New York.

  • Roy, A. D. (1952). Safety first and the holding of assets. Econometrica, 20(3), 431-449.

  • Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance, 29, 1964, 425-442.

  • Scheel, H. (2001). Undesirable outputs in efficiency valuations, European Journal of Operational Research 132, 400–410.

  • Seiford, L. M., & Zhu, Z. (2002). Modeling undesirable factors in efficiency evaluation. European Journal of Operational Research, 142, 16-20.

  • Shephard, R. W. (1953). Cost and Productions. Princeton: Princeton University Press.

  • Shephard, R. W. (1970). Theory of Cost and Productions. Princeton: Princeton University Press.

  • Tobin, J. (1958). Liquidity preference as behavior towards risk. Review of Economic Studies, 25, 1958, 65-86.

  • Tone, K. (2001). A slacks-based measure of efficiency in data envelopment analysis. European Journal of Operational Research, 130(3), 498.

  • Treynor, J. L. (1985). How to rate management investment funds. Harvard Business Review, 43, January-February, 63-75.

  • Tone, K. (2003). Dealing with undesirable outputs in DEA: A Slacks-based Measure Approach, GRIPS working paper, GRIPS, Tokyo.

  • Zhao, X., Wang, S., & Lai, K. K. (2011). Mutual fund performance evaluation based on endogenous benchmarks. Expert Systems with Applications, 38, 3663-3670.


Abstract Views: 261

PDF Views: 0




  • Benchmarking of Indian Sectoral Mutual Funds - A Non-Separable Undesirable Output Model

Abstract Views: 261  |  PDF Views: 0

Authors

Ram Pratap Sinha
Government College of Engineering and Leather Technology, Kolkata, West Bengal, India

Abstract


Performance analysis of mutual funds is usually made on the basis of return-risk framework where return is considered an output indicator and risk is considered as an input indicator. However, portfolio risk in actuality is a non-separable undesirable output and any effort to reduce it also causes a reduction in portfolio return. In view of this, the present paper uses a non-parametric nonseparable undesirable output model to evaluate the performance of 27 sectoral mutual fund schemes based on observations for the period July 2010 to June 2013. The USP of the present study is that return and risk are considered as both non-separable outcome of the process of investment. The results exhibit stability of mean efficiency scores across the observed years. Further, fund inefficiency mostly emerged from the input side and not from the output side.

Keywords


JEL Classification: C-61, D-21, G-23, Mutual Fund, Endogenous Benchmarking, DEA, Non-separability, Undesirable Output.

References