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Is size an input in the mutual fund performance evaluation with DEA?

Author

Listed:
  • Sevgi Eda Tuzcu

    (Ankara Üniversitesi, Siyasal Bilgiler Fakültesi, Cebeci Kampüsü)

  • Emrah Ertugay

    (Ankara Üniversitesi, Siyasal Bilgiler Fakültesi, Cebeci Kampüsü)

Abstract

It has been a common practice to evaluate the performance of mutual funds with data envelopment analysis (DEA). However, DEA itself is a “black box”, since there are no pre-determined inputs or outputs. This paper aims to add clarification to the “black box” nature of DEA by investigating whether fund size has to be included among DEA inputs in the Turkish mutual fund performance evaluation. Fund managers receive a proportion of fund size as compensation. Therefore, besides the traditional risk and expense inputs, economies or diseconomies of scale may also be effective in the fund’s performance. For these reasons, the evaluation of fund performance by using DEA may require fund size as an input. Yet, few international study adds size as an input to the DEA. The evidence is even scarcer for developing country fund markets. To the extent of our knowledge, size has not been utilized in the Turkish mutual fund performance evaluations. This paper aims to contribute to the literature by examining the linear and nonlinear relations between DEA scores and fund size for the Turkish mutual fund industry. For this aim, linear correlation, and Kendall and Spearman rank correlation coefficients are employed as well as a regression specification. The correlations and the regression results reveal a linear relationship between the efficiency scores and fund size. In general, this study presents stronger evidence for the fund size and fund efficiency relation than Basso and Funari (Eur J Finance 23:457–473, 2017) for the Turkish mutual fund market.

Suggested Citation

  • Sevgi Eda Tuzcu & Emrah Ertugay, 2020. "Is size an input in the mutual fund performance evaluation with DEA?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(4), pages 635-659, December.
    • Handle: RePEc:spr:eurase:v:10:y:2020:i:4:d:10.1007_s40822-020-00141-6
    DOI: 10.1007/s40822-020-00141-6
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    References listed on IDEAS

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    3. Davide Lanfranchi & Laura Grassi, 2021. "Translating technological innovation into efficiency: the case of US public P&C insurance companies," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(4), pages 565-585, December.

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    More about this item

    Keywords

    Data envelopment analysis (DEA); DEA inputs and outputs selection; Mutual fund performance; Size;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models

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