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

Kristiaan Kerstens, A Mounir and I Van de Woestyne
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A Mounir: Mundiapolis University, Casablanca, Morocco
I Van de Woestyne: Hogeschool-Universiteit Brussel, Brussels, Belgium

Journal of the Operational Research Society, 2012, vol. 63, issue 9, 1199-1212

Abstract: 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.

Date: 2012
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