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The efficiency of mutual funds

Author

Listed:
  • Javier Vidal-García

    (Universidad de Valladolid)

  • Marta Vidal

    (Universidad Complutense de Madrid)

  • Sabri Boubaker

    (Groupe ESC Troyes en Champagne
    Vietnam National University)

  • Majdi Hassan

    (École Supérieure des Sciences Economiques et Commerciales de Tunis (ESSEC Tunis))

Abstract

This paper analyzes the short-term market efficiency of the mutual fund industry around the world. Using a unique database of worldwide domestic equity funds, it employs a parametric (regression model) and non-parametric (data envelopment analysis (DEA) model) approaches to establish a relation between cost (expense ratio, turnover, loads, and risk) and benefit (return) of mutual funds. The empirical results of the parametric approach show a statistically significant negative relationship between expenses and risk-adjusted performance across countries. When we reexamine this relationship using a non-parametric approach, we show, in contrast to our previous result, a positive relationship between expenses and risk-adjusted performance. Thus, using the DEA methodology, we find strong evidence that equity mutual funds around the world are approximately mean–variance efficient.

Suggested Citation

  • Javier Vidal-García & Marta Vidal & Sabri Boubaker & Majdi Hassan, 2018. "The efficiency of mutual funds," Annals of Operations Research, Springer, vol. 267(1), pages 555-584, August.
  • Handle: RePEc:spr:annopr:v:267:y:2018:i:1:d:10.1007_s10479-017-2429-z
    DOI: 10.1007/s10479-017-2429-z
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    4. Katarzyna Perez & £ukasz Szymczyk, 2022. "Actual rate of the management fee in mutual funds of different styles," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 17(4), pages 969-1014, December.
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    More about this item

    Keywords

    Mutual funds; Portfolio efficiency; Data envelopment analysis; Multiple criteria decision;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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