The efficiency evaluation of mutual fund managers based on DARA, CARA, IARA

Mohammad Reza Tavakoli Baghdadabad, Farid Habibi Tanha, Noreha Halid

    Research output: Contribution to journalArticle

    2 Citations (Scopus)

    Abstract

    We evaluate the efficiency of mutual fund managers of 20 different classes of management styles to identify the most efficient strategies and to propose an optimal pattern in selecting the funds by investors. We collect monthly data of 17,686 US mutual funds for a five-year period 2005-2010 to minimize the impact of survivorship bias and use Data Envelopment Analysis (DEA) model to evaluate the mutual fund performance. The set of considered inputs comprised "variance", representing the mutual fund risk, and "turnover, expense ratio and loads indicators", reflecting the mutual fund costs and fees. Two kinds of outputs are taken into account by our DEA model, "portfolio return" and "stochastic dominance indicators". As a unique contribution, we state the benefits of the DEA approach in the DARA, CARA, and IARA framework, and evaluate the efficiency of mutual funds based on fund strategies as well as the performance of best mutual funds among their group. The evidence shows that the efficiency scores of technical, management, and scale are respectively 0.81, 0.921, and 0.874 for the DARA model, while the efficiency scores of two models of CARA and IARA are negligible. Also, we rank each management strategy in any model based on two methods - the number of referencing and the weighted value so that the managers of inefficient strategies must pattern the managers' ability of reference (efficient) strategies to improve their efficiency on the fund market in future.

    Original languageEnglish
    Pages (from-to)677-695
    Number of pages19
    JournalJournal of Business Economics and Management
    Volume14
    Issue number4
    DOIs
    Publication statusPublished - 2013

    Fingerprint

    Fund managers
    Mutual funds
    Evaluation
    Data envelopment analysis
    Managers
    Turnover
    Mutual fund performance
    Management strategy
    Survivorship bias
    Costs
    Expenses
    Portfolio model
    Investors
    Stochastic dominance
    Fees
    Management styles

    Keywords

    • CARA
    • DARA
    • Data envelopment analysis
    • IARA
    • Mutual fund
    • Stochastic dominance

    ASJC Scopus subject areas

    • Business, Management and Accounting (miscellaneous)
    • Economics and Econometrics

    Cite this

    The efficiency evaluation of mutual fund managers based on DARA, CARA, IARA. / Baghdadabad, Mohammad Reza Tavakoli; Tanha, Farid Habibi; Halid, Noreha.

    In: Journal of Business Economics and Management, Vol. 14, No. 4, 2013, p. 677-695.

    Research output: Contribution to journalArticle

    Baghdadabad, Mohammad Reza Tavakoli ; Tanha, Farid Habibi ; Halid, Noreha. / The efficiency evaluation of mutual fund managers based on DARA, CARA, IARA. In: Journal of Business Economics and Management. 2013 ; Vol. 14, No. 4. pp. 677-695.
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