Babalos, Vassilios and Philippas, Nikolaos and Doumpos, Michael and Zompounidis, Constantin (2012): Mutual funds performance appraisal using stochastic multicriteria acceptability analysis. Published in: Applied Mathematics and Computation , Vol. 218, (2011): pp. 5693-5703.
This is the latest version of this item.
Download (207kB) | Preview
Mutual fund investors are concerned with the selection of the best fund in terms of performance among the set of alternative funds. This paper proposes an innovative mutual funds performance evaluation measure in the context of multicriteria decision making. We implement a multicriteria methodology using stochastic multicriteria acceptability analysis, on Greek domestic equity funds for the period 2000–2009. Combining a unique dataset of risk-adjusted returns such as Carhart’s alpha with funds’ cost variables,we obtain a multicriteria performance evaluation and ranking of the mutual funds, by means of an additive value function model. The main conclusion is that among employed variables, the sophisticated Carhart’s alpha plays the most important role in determining fund rankings. On the other hand, funds’ rankings are affected only marginally by operational attributes. We believe that our results could have serious implications either in terms of a fund rating system or for constructing optimal combinations of portfolios.
|Item Type:||MPRA Paper|
|Original Title:||Mutual funds performance appraisal using stochastic multicriteria acceptability analysis|
|English Title:||Mutual funds performance appraisal using stochastic multicriteria acceptability analysis|
|Keywords:||Mutual funds,Performance appraisal,Multicriteria analysis Simulation|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions
G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors
C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods
G - Financial Economics > G1 - General Financial Markets > G10 - General
|Depositing User:||VASSILIOS BABALOS|
|Date Deposited:||19. Oct 2012 17:45|
|Last Modified:||23. Aug 2015 22:39|
N. Adler, L. Friedman, Z. Sinuany-Stern, Review of ranking methods in the data envelopment analysis context, European Journal of Operational Research 140 (2002) 249–265.
R. Anderson, C. Brockman, C. Giannikos, R. McLeod, A non-parametric examination of real estate mutual fund efficiency, International Journal of Business and Economics 3 (2004) 225–238.
V. Babalos, A. Kostakis, N. Philippas, Spurious results in testing mutual fund performance persistence: evidence from the Greek market, Applied Financial Economics Letters 3 (2007) 103–108.
V. Babalos, G.M. Caporale, A. Kostakis, N. Philippas, Testing for persistence in mutual fund performance and the ex-post verification problem: evidence from the Greek market, The European Journal of Finance 14 (2008) 735–753.
V. Babalos, A. Kostakis, N. Philippas, Managing mutual funds or managing expense ratios? Evidence from the Greek fund industry, Journal of Multinational Financial Management 19 (2009) 256–272.
B.M. Barber, T. Odean, L. Zheng, Out of sight, out of mind: the effects of expenses on mutual fund flows, Journal of Business 78 (2005) 2095–2120.
A. Basso, S. Funari, A data envelopment analysis approach to measure the mutual fund performance, European Journal of Operational Research 135 (2001) 477–492.
A. Basso, S. Funari, Measuring the performance of ethical mutual funds: a DEA approach, Journal of the Operational Research Society 54 (2003) 521– 531.
A. Basso, S. Funari, DEA models for ethical and non ethical mutual funds, Mathematical Methods in Economics and Finance 2 (1) (2007) 21–40.
K.L. Bechmann, J. Rangvid, Rating mutual funds: construction and information content of an investor-cost based rating of Danish mutual funds, Journal of Empirical Finance 14 (2007) 662–693.
C.R. Blake, M.R. Morey, Morningstar ratings and mutual fund performance, Journal of Financial and Quantitative Analysis 35 (2000) 451–483.
D. Bouyssou, Using DEA as a tool for MCDM: some remarks, Journal of the Operational Research Society 50 (1999) 974–978.
S.J. Brown, W. Goetzmann, R. Ibbotson, S. Ross, Survivorship bias in performance studies, Review of Financial Studies 5 (1992) 553–580.
M.M. Carhart, On persistence in mutual fund performance, Journal of Finance 52 (1997) 52–82.
M.M. Carhart, J.N. Carpenter, A.W. Lynch, D.K. Musto, Mutual fund survivorship, Review of Financial Studies 15 (2002) 1439–1463.
J. Christopherson, W. Ferson, D. Glassman, Conditioning manager alphas on economic information: another look at the persistence of performance, Review of Financial Studies 11 (1998) 111–142.
M. Cremers, A. Petajisto, How active is your fund manager? A new measure that predicts performance, Review of Financial Studies 22 (2009) 3329–3365.
C. Daraio, L. Simar, A robust nonparametric approach to evaluate and explain the performance of mutual funds, European Journal of Operational Research 175 (2006) 516–542.
D. Del Guercio, P.A. Tkac, Star power: the effect of Morningstar ratings on mutual fund flow, Journal of Financial and Quantitative Analysis 43 (2008) 907–936.
E.J. Elton, M.J. Gruber, C.R. Blake, The persistence of risk-adjusted mutual fund performance, Journal of Business 69 (1996) 133–157.
E.F. Fama, K.R. French, Common risk factors in the returns on bonds and stocks, Journal of Financial Economics 33 (1993) 3–53.
E.F. Fama, K.R. French, Multifactor explanations of asset pricing anomalies, Journal of Finance 51 (1996) 55–84.
E.F. Fama, K.R. French, Luck versus skill in the cross section of mutual fund returns, Journal of Finance 65 (2010) 1915–1947.
T. Fawcett, An introduction to ROC analysis, Pattern Recognition Letters 27 (2006) 861–874.
W. Ferson, R. Schadt, Measuring fund strategy and performance in changing economic conditions, Journal of Finance 51 (1996) 425–461.
W. Ferson, V. Warther, Evaluating fund performance in a dynamic market, Financial Analysts Journal 52 (1996) 20–28.
D.U.A. Galagadera, P. Silvapulle, Australian mutual fund performance appraisal using data envelopment analysis, Managerial Finance 28 (2002) 60–73.
M.T. Garcia, Efficiency evaluation of the Portuguese pension funds management companies, Journal of International Financial Markets, Institutions and Money 20 (2010) 259–266.
W.N. Goetzmann, R.G. Ibbotson, Do winners repeat?, Journal of Portfolio Management 20 (1994) 9–18
G.N. Gregoriou, Performance appraisal of funds of hedge funds using data envelopment analysis, Journal of Wealth Management 5 (2003) 88–95.
G.N. Gregoriou, K. Sedzro, J. Zhu, Hedge fund performance appraisal using data envelopment analysis, European Journal of Operational Research 164 (2005) 555–571.
M.J. Gruber, Another puzzle: the growth in actively managed mutual funds, Journal of Finance 51 (1996) 783–810.
D. Hendricks, J. Patel, R. Zeckhauser, Hot hands in mutual funds: Short-run persistence of relative performance, 1974–88, Journal of Finance 48 (1993) 93–130.
R.D. Henriksson, R.C. Merton, On market timing and investment performance II: statistical procedures for evaluating forecasting skills, Journal of Business 54 (1981) 513–533.
E. Jacquet-Lagrθze, Y. Siskos, Assessing a set of additive utility functions for multicriteria decision making: the UTA method, European Journal of Operational Research 10 (1982) 151–164.
N. Jegadeesh, S. Titman, Returns to buying winners and selling losers: implications for stock market efficiency, Journal of Finance 48 (1993) 65–91.
M. Jensen, The performance of mutual funds in the period 1945–64, Journal of Finance 23 (1968) 389–416.
R. Lahdelma, P. Salminen, SMAA-2: stochastic multicriteria acceptability analysis for group decision making, Operations Research 49 (2001) 444–454.
R. Lahdelma, J. Hokkanen, P. Salminen, SMAA-stochastic multiobjective acceptability analysis, European Journal of Operational Research 106 (1998) 137–143.
S. Lozano, E. Gutierez, Data envelopment analysis of mutual funds based on second order stochastic dominance, European Journal of Operational Research 189 (2008) 230–244.
B.G. Malkiel, Returns from investing in equity mutual funds 1971–91, Journal of Finance 50 (1995) 549–572.
H. Markowitz, Portfolio selection, Journal of Finance 7 (1952) 77–91.
R. Merton, An intertemporal capital asset pricing model, Econometrica 41 (1973) 867–887.
B.P.S. Murthi, Y.K. Choi, P. Desai, Efficiency of mutual funds and portfolio performance measurement: a non-parametric approach, European Journal of Operational Research 98 (1997) 408–418.
B.P.S. Murthi, Y.K. Choi, Relative performance evaluation of mutual funds: a non-parametric approach, Journal of Business Finance and Accounting 28 (2001) 853–876.
R. Otten, D. Bams, European mutual fund performance, European Financial Management 8 (2002) 75–101.
K. Pendaraki, C. Zopounidis, M. Doumpos, On the construction of mutual fund portfolios: a multicriteria methodology and an application to the Greek market of equity mutual funds, European Journal of Operational Research 163 (2005) 462–481.
M. Rohleder, H. Scholz, M. Wilken, Survivorship bias and mutual fund performance: relevance, significance, and methodical differences, Review of Finance 15 (2011) 441–474.
R. Roll, A critique of the asset pricing theory’s tests: part I: on past and potential testability of the theory, Journal of Financial Economics 4 (1977) 129–176.
R. Roll, Ambiguity when performance is measured by the security market line, Journal of Finance 33 (1978) 1051–1069.
S. Ross, The arbitrage theory of capital asset pricing, Journal of Economic Theory 13 (1976) 341–360.
J. Sengupta, Efficiency tests for mutual fund portfolios, Applied Financial Economics 13 (2003) 869–876.
W.F. Sharpe, Mutual fund performance, Journal of Business 39 (1966) 119–138.
T. Tervonen, J. Figueira, A survey on stochastic multicriteria acceptability analysis methods, Journal of Multi-Criteria Decision Analysis 15 (2008) 1–14.
J. Treynor, How to rate management of investment funds, Harvard Business Review 43 (1965) 63–75.
J. Treynor, K. Mazuy, Can mutual funds outguess the market?, Harvard Business Review 44 (1966) 131–136
Available Versions of this Item
Mutual funds performance appraisal using stochastic multicriteria acceptability analysis. (deposited 09. Apr 2012 23:53)
- Mutual funds performance appraisal using stochastic multicriteria acceptability analysis. (deposited 19. Oct 2012 17:45) [Currently Displayed]