Enhancement of value portfolio performance using data envelopment analysis
Purpose - The purpose of this paper is to examine the applicability of data envelopment analysis (DEA) as a basis of value portfolio selection criterion. Design/methodology/approach - The portfolios are composed of the comprehensive sample of Finnish non-financial stocks based on their DEA scale efficiency scores. The performance of portfolios is evaluated on the basis of average return and several risk-adjusted performance metrics. Moreover, the impact of holding period length on the results is examined by varying the portfolio reformation frequency from one to five years at annual frequency. Findings - The results show that the DEA scale efficiency scores add value to portfolio selection. Though outperformance of the DEA value portfolios in contrast to both comparable glamour portfolio and the stock market average is most evident for shorter (i.e. annual and biannual) holding periods, the absolute performance of the DEA value portfolio can be enhanced by using longer reformation intervals. Research limitations/implications - The sample of stocks is not large in spite of its comprehensiveness from the local stock market aspect. Future studies can apply DEA approach to other stock markets to examine whether the results are parallel to this study. Practical implications - The DEA is particularly useful as a multicriteria methodology in cases in which the number of stocks in the sample is large. Originality/value - This paper is the first attempt to form value portfolios using DEA models. The proposed methodology provides an interesting alternative to detect undervalued stocks by capturing several dimensions of relative value simultaneously. It provides also useful implications in portfolio management.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 27 (2010)
Issue (Month): 3 (August)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=sef Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barberis, Nicholas & Shleifer, Andrei & Vishny, Robert, 1998.
"A model of investor sentiment,"
Journal of Financial Economics,
Elsevier, vol. 49(3), pages 307-343, September.
- Blume, Marshall E, 1980. "Stock Returns and Dividend Yields: Some More Evidence," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 567-577, November.
- Ron Bird & Lorenzo Casavecchia, 2007. "Sentiment and Financial Health Indicators for Value and Growth Stocks: The European Experience," The European Journal of Finance, Taylor & Francis Journals, vol. 13(8), pages 769-793.
- Oliver Ledoit & Michael Wolf, 2008.
"Robust Performance Hypothesis Testing with the Sharpe Ratio,"
IEW - Working Papers
320, Institute for Empirical Research in Economics - University of Zurich.
- Ledoit, Oliver & Wolf, Michael, 2008. "Robust performance hypothesis testing with the Sharpe ratio," Journal of Empirical Finance, Elsevier, vol. 15(5), pages 850-859, December.
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- Suzuki, Makoto, 1998. "PSR--an efficient stock-selection tool?," International Journal of Forecasting, Elsevier, vol. 14(2), pages 245-254, June.
- Kadoya, Susumu & Kuroko, Takashi & Namatame, Takashi, 2008. "Contrarian investment strategy with data envelopment analysis concept," European Journal of Operational Research, Elsevier, vol. 189(1), pages 120-131, August.
- Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
- Eugene F. Fama & Kenneth R. French, 2006. "The Value Premium and the CAPM," Journal of Finance, American Finance Association, vol. 61(5), pages 2163-2185, October.
- William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
- De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
- Litzenberger, Robert H & Ramaswamy, Krishna, 1982. " The Effects of Dividends on Common Stock Prices: Tax Effects or Information Effects?," Journal of Finance, American Finance Association, vol. 37(2), pages 429-443, May.
- Ron Bird, 2007. "Value enhancement using momentum indicators: the European experience," International Journal of Managerial Finance, Emerald Group Publishing, vol. 3(3), pages 229-262, July.
- Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
- Kent Daniel & Sheridan Titman, 2003.
"Market Reactions to Tangible and Intangible Information,"
NBER Working Papers
9743, National Bureau of Economic Research, Inc.
- Kent Daniel & Sheridan Titman, 2006. "Market Reactions to Tangible and Intangible Information," Journal of Finance, American Finance Association, vol. 61(4), pages 1605-1643, 08.
- Eling, Martin & Schuhmacher, Frank, 2007. "Does the choice of performance measure influence the evaluation of hedge funds?," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2632-2647, September.
- Brown, Stephen & Yan Du, Daphne & Rhee, S. Ghon & Zhang, Liang, 2008. "The returns to value and momentum in Asian Markets," Emerging Markets Review, Elsevier, vol. 9(2), pages 79-88, June.
- Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
- Dimitris Kyriazis & George Diacogiannis, 2007. "Testing the performance of value strategies in the Athens Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 17(18), pages 1511-1528.
- Chan, Louis K C & Hamao, Yasushi & Lakonishok, Josef, 1991. " Fundamentals and Stock Returns in Japan," Journal of Finance, American Finance Association, vol. 46(5), pages 1739-1764, December.
When requesting a correction, please mention this item's handle: RePEc:eme:sefpps:v:27:y:2010:i:3:p:223-246. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.