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Dynamic network DEA approach with diversification to multi-period performance evaluation of funds

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Abstract

When analyzing the relative performance of mutual funds, current data envelopment analysis (DEA) models with diversification ignore the performance change in consecutive periods or the dynamic dependence among investment periods. This paper introduces a novel multi-period network DEA approach with diversification and directional distance function. The new approach decomposes the overall efficiency of a mutual fund in the whole investment interval into efficiencies at individual periods. At each period, mutual funds consume exogenous inputs and intermediate products produced from the preceding period to produce exogenous outputs and intermediate products for the next period to use. Efficiency decomposition reveals the time at which the inefficiency occurs. The new model can provide expected inputs, outputs and intermediate variables at individual periods, which are helpful for managers to find factors causing the overall inefficiency of a fund. Under the assumption of discrete return distributions and a proper choice of inputs, outputs and intermediate variables, the proposed models can be transformed into linear programs. The applicability and reasonability of the proposed method are demonstrated by applying it to assess the relative performance of funds in Chinese security market and European security market, respectively.

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Authors and Affiliations

  1. School of Mathematics and Statistics, Xi’an Jiaotong University, Xianning West Road 28, Xi’an, 710049, Shaanxi Province, People’s Republic of China

    Ruiyue Lin, Zhiping Chen, Qianhui Hu & Zongxin Li

  2. School of Mathematics and Information Science, Wenzhou University, Higher Education Zone, Wenzhou, 325035, Zhejiang Province, People’s Republic of China

    Ruiyue Lin

Authors
  1. Ruiyue Lin
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  2. Zhiping Chen
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  3. Qianhui Hu
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  4. Zongxin Li
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Corresponding author

Correspondence to Zhiping Chen.

Additional information

This work is supported by the Natural Science Foundation of Zhejiang Province, China (Grant No. LY17G010004) and the National Natural Science Foundation of China (Grant Nos. 11301395, 71371152 and 11571270). The authors appreciate the important comments made by Dr. Martin Branda. The authors are grateful to two anonymous reviewers and the editor for their constructive comments, which have helped us to improve the paper significantly in both content and style.

Appendix A: the chief MATLAB code for solving problem \((M^{O'})\)

Appendix A: the chief MATLAB code for solving problem \((M^{O'})\)

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Lin, R., Chen, Z., Hu, Q. et al. Dynamic network DEA approach with diversification to multi-period performance evaluation of funds. OR Spectrum 39, 821–860 (2017). https://doi.org/10.1007/s00291-017-0475-1

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