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On the informativeness of persistence for mutual funds' performance evaluation using partial frontiers

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Author Info

  • Amparo Soler Domínguez

    ()
    (Dpt. Finances i Comptabilitat)

  • Juan Carlos Matallín Sáez

    ()
    (Dpt. Finances i Comptabilitat)

  • Emili Tortosa Ausina

    ()
    (Universitat Jaume I)

Abstract

The last few years have witnessed a rapid evolution in the literature evaluating mutual fund performance using frontier techniques. The instruments applied, mostly DEA (Data Envelopment Analysis) and, to a lesser extent, FDH (Free Disposal Hull), are able to encompass several dimensions of performance, but they also have some disadvantages that might be preventing a wider acceptance. The recently developed order-m and order-a partial frontiers overcome some of the disadvantages (they are robust with respect to extreme values and noise, and do not suffer from the well-known curse of dimensionality) while keeping the main virtues of DEA and FDH (they are fully-nonparametric). In this article we apply not only the non-convex counterpart of DEA, namely, FDH but also order-m and order-a partial frontiers to a sample of Spanish mutual funds. The results obtained for both order-m and order-a are useful, since a full ranking of mutual funds’ performance is obtained. We combine these methods with the literature on mutual fund performance persistence. By combining the two literatures we derive an algorithm for guiding the choice of m and a parameters intrinsic to order-m and order-a (respectively) based on mutual fund performance persistence. Los últimos años han sido testigos de una rápida evolución de la literatura que evalúa el rendimiento de fondos de inversión utilizando la metodología del enfoque frontera. Los instrumentos aplicados, principalmente DEA (Data Envelopment Analysis) y, en menor medida, FDH (Free Disposable Hull), son capaces de abarcar varios aspectos del rendimiento, pero también poseen algunas desventajas que podrían impedir una mayor aceptación. El recientemente desarrollado enfoque de las fronteras parciales de orden-m y de orden-alfa supera algunos de los inconvenientes (estos procedimientos son robustos con respecto a los valores extremos y perturbaciones aleatorias o ruido, y no sufren la conocida “maldición de la dimensionalidad” o curse of dimensionality), manteniendo las principales virtudes de DEA y FDH (ambas técnicas son absolutamente no paramétricas). En este artículo se aplica no sólo la versión no convexa de DEA, es decir, FDH, sino también para fronteras de orden-m y de orden-alfa cuya utilidad es notable, ya que se obtiene una clasificación completa del rendimiento de los fondos de inversión. En este trabajo se combinan estos métodos con la literatura existente relativa a la persistencia en el rendimiento de los fondos de inversión. Mediante la combinación de ambas literaturas deducimos un algoritmo capaz de guiar (o que sirva de referencia) en la elección de los parámetros intrínsecos m y alfa correspondientes a orden-m y a orden-alfa (respectivamente) en base a la persistencia en el rendimiento de los fondos de inversión.

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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie EC with number 2011-08.

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Length: 44 pages
Date of creation: Jan 2011
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasec:2011-08

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Keywords: eficiencia; fondos de inversión; enfoque de fronteras parciales; persistencia. efficiency; mutual funds; partial frontiers; persistence.;

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References

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