A DEA-financial technology: prior to portfolio analysis with DEA

In this paper, we question the definition of a financial technology that results from the application of a traditional methodology with DEA to the analysis of portfolios of financial assets. We acknowledge the previous applications and show how two approaches have been adopted until now in the literature: a ‘DEA-production’ approach inherited from production theory and a ‘DEA-benchmarking’ approach inherited from operational research. We show how these approaches define the technology regarding financial assets; we also identify which underlying criteria are used for input and output selection. As a basis for a new ‘DEA-financial’ approach, we propose to identify a ‘financial production process’ that differs from the traditional risk-return relationship but is rather based on the generation of a distribution of returns by an initial investment. This identification of a financial production process ensures the proper selection of input and output variables and addresses several issues recently raised by Cook, Tone & Zhu (2014).