Data envelopment analysis models of investment funds
AbstractThis paper develops theory missing in the sizable literature that uses data envelopment analysis to construct return–risk ratios for investment funds. It explores the production possibility set of the investment funds to identify an appropriate form of returns to scale. It discusses what risk and return measures can justifiably be combined and how to deal with negative risks, and identifies suitable sets of measures. It identifies the problems of failing to deal with diversification and develops an iterative approximation procedure to deal with it. It identifies relationships between diversification, coherent measures of risk and stochastic dominance. It shows how the iterative procedure makes a practical difference using monthly returns of 30 hedge funds over the same time period. It discusses possible shortcomings of the procedure and offers directions for future research.
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Bibliographic InfoArticle provided by Elsevier in its journal European Journal of Operational Research.
Volume (Year): 216 (2012)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/eor
Data envelopment analysis; Investment fund; Diversification; Coherent risk measure; Returns to scale; Stochastic dominance;
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