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

Sevgi Eda Tuzcu () and Emrah Ertugay
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Sevgi Eda Tuzcu: Ankara Üniversitesi, Siyasal Bilgiler Fakültesi, Cebeci Kampüsü
Emrah Ertugay: Ankara Üniversitesi, Siyasal Bilgiler Fakültesi, Cebeci Kampüsü

Eurasian Economic Review, 2020, vol. 10, issue 4, No 4, 635-659

Abstract: 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.

Keywords: Data envelopment analysis (DEA); DEA inputs and outputs selection; Mutual fund performance; Size (search for similar items in EconPapers)
JEL-codes: C67 G11 G23 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s40822-020-00141-6

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