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Benchmarking mean-variance portfolios using a shortage function: the choice of direction vector affects rankings!

  • K Kerstens

    (CNRS-LEM (UMR 8179), IESEG School of Management, Lille, France)

  • A Mounir

    (Mundiapolis University, Casablanca, Morocco)

  • I Van de Woestyne

    (Hogeschool-Universiteit Brussel, Brussels, Belgium)

In addition to its use in data envelopment analysis models, the shortage function has been proposed as a tool to gauge performance in multi-moment portfolio models. An open issue is how the choice of direction vector affects the efficiency measurement, especially when some of the data can be negative and, from a practical point of view, whether and how the resulting league tables are affected. This paper illustrates empirically how the choice of direction vector affects the relative ranking of mean-variance portfolios. This result is relevant to all frontier-based applications, especially those where some of the data can be naturally negative.

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Article provided by Palgrave Macmillan in its journal Journal of the Operational Research Society.

Volume (Year): 63 (2012)
Issue (Month): 9 (September)
Pages: 1199-1212

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Handle: RePEc:pal:jorsoc:v:63:y:2012:i:9:p:1199-1212
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