A DEA-financial technology: prior to portfolio analysis with DEA

Albane Tarnaud and Hervé Leleu

No 2015-EQM-02, Working Papers from IESEG School of Management

Abstract: In this paper, we question the definition of a financial technology that results from the application of a traditional methodology with DEA to the analysis of portfolios of financial assets. We acknowledge the previous applications and show how two approaches have been adopted until now in the literature: a ‘DEA-production’ approach inherited from production theory and a ‘DEA-benchmarking’ approach inherited from operational research. We show how these approaches define the technology regarding financial assets; we also identify which underlying criteria are used for input and output selection. As a basis for a new ‘DEA-financial’ approach, we propose to identify a ‘financial production process’ that differs from the traditional risk-return relationship but is rather based on the generation of a distribution of returns by an initial investment. This identification of a financial production process ensures the proper selection of input and output variables and addresses several issues recently raised by Cook, Tone & Zhu (2014).

Keywords: Data envelopment analysis; Input; Output; DEA-financial technology; Portfolio (search for similar items in EconPapers)
Pages: 21 pages
Date: 2015-03
New Economics Papers: this item is included in nep-eff and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:ies:wpaper:e201502

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