Mutual fund performance appraisals: a multi-horizon perspective with endogenous benchmarking

Matthew R. Morey and Richard C. Morey

Omega, 1999, vol. 27, issue 2, 241-258

Abstract: With over 6500 mutual funds available to investors, industry data show that consumers pay a great deal of attention to the ratings of mutual funds. In spite of this attention, however, much controversy surrounds the various industry approaches to the rating of mutual funds. Many industry rating approaches use subjective weights to integrate fund performances over different time horizons; this can give rise to quite different ratings, depending upon the relative importances assigned to different horizons. In this paper, we present two basic quadratic programming approaches for identifying those funds that are strictly dominated, regardless of the weightings on the different time horizons being considered, relative to their mean returns and risks. This effort can be viewed as a novel application of the philosophy of data envelopment analysis, a relatively new, non-parametric frontier estimation technique which focuses on estimating 'radial' contraction/expansion potentials. These approaches eliminate any need for subjective tradeoffs, vis-á-vis the importance or meaningfulness of performances over the different horizons. Finally, much useful sensitivity information is automatically provided. Also, in contrast to many studies of mutual fund performance, our approaches endogenously determine a custom-tailored benchmark portfolio to which each mutual fund's performance is compared. All of our approaches are illustrated on a sample of twenty-six actual mutual funds.

Keywords: Mutual; funds; Benchmarking; Ratings; Data; envelopment; analysis; Multi-horizon; Risks; Quadratic; programming (search for similar items in EconPapers)
Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (86)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0305-0483(98)00043-7
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:27:y:1999:i:2:p:241-258

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

Access Statistics for this article

Omega is currently edited by B. Lev

More articles in Omega from Elsevier
Bibliographic data for series maintained by Catherine Liu ().