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Association between environmental factors and equity market performance: evidence from a nonparametric frontier method

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  • Don Galagedera

Abstract

In this cross-sectional study, equity market performance is assessed in a multidimensional risk-adjusted return framework using a nonparametric procedure known as data envelopment analysis. Employing a censored regression procedure, the association between equity market performance and a set of variables that proxy market characteristics and the political and business environment in which the market operates is investigated. The paper contributes to the literature on the association between environmental factors and equity market performance by using a methodology not previously employed in such investigations. The results reveal that equity market performance may be positively related to the size of the market and friendliness of the business environment. Friendliness of the business environment is an objective measure of regulations conducive to business and their enforcement. Copyright Swiss Society for Financial Market Research 2010

Suggested Citation

  • Don Galagedera, 2010. "Association between environmental factors and equity market performance: evidence from a nonparametric frontier method," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 24(3), pages 245-269, September.
    • Handle: RePEc:kap:fmktpm:v:24:y:2010:i:3:p:245-269
    DOI: 10.1007/s11408-010-0133-y
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    References listed on IDEAS

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    4. Gregoriou, Greg N. & Sedzro, Komlan & Zhu, Joe, 2005. "Hedge fund performance appraisal using data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 164(2), pages 555-571, July.
    5. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    6. H. Fried & C. Lovell & S. Schmidt & S. Yaisawarng, 2002. "Accounting for Environmental Effects and Statistical Noise in Data Envelopment Analysis," Journal of Productivity Analysis, Springer, vol. 17(1), pages 157-174, January.
    7. Simar, Leopold & Wilson, Paul W., 2007. "Estimation and inference in two-stage, semi-parametric models of production processes," Journal of Econometrics, Elsevier, vol. 136(1), pages 31-64, January.
    8. Don U.A. Galagedera, 2004. "A Survey On Investment Performance Appraisal Methods With Special Reference To Data Envelopment Analysis," Finance 0406013, University Library of Munich, Germany.
    9. Martin Eling, 2006. "Performance measurement of hedge funds using data envelopment analysis," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 20(4), pages 442-471, December.
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    Cited by:

    1. Galagedera, Don U.A., 2012. "Recent trends in relative performance of global equity markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 834-854.
    2. Galagedera, Don U.A., 2013. "A new perspective of equity market performance," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 333-357.
    3. Johann Burgstaller & Teodoro Cocca, 2011. "Efficiency in private banking: evidence from Switzerland and Liechtenstein," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 25(1), pages 75-93, March.

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    More about this item

    Keywords

    Relative performance; Data envelopment analysis; Emerging markets; Developed markets; Operational environment; C44; C67; G10; G15;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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