Title: Mutual funds return and risk decomposition evaluation based on quadratic-constrained DEA models

Authors: Xiujuan Zhao, Kin Keung Lai, Shouyang Wang

Addresses: School of Economics and Management, Beijing University of Posts and Telecommunication, Beijing 100876, China. ' Department of Management Sciences, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong. ' Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100080, China

Abstract: This paper proposes two quadratic-constrained DEA models for the evaluation of mutual funds, from a perspective of evaluation based on endogenous benchmarks. In comparison to the previous studies, this paper decomposes the two vital factors for mutual funds performance, i.e., risk and return, in these quadratic-constrained DEA models, one of which is a partly controllable quadratic-constrained programming, in order to construct mutual funds| endogenous benchmarks and give insight management suggestions. The approach is illustrated on a sample of 64 actual mutual funds in the China market. It identifies the root reasons of inefficiency and the ways for improving performance. The most important conclusion is that the ranking of mutual funds in China depends mostly on the system risk control.

Keywords: mutual funds; data envelopment analysis; Malmquist DEA; performance evaluation; efficiency; persistence; risk decomposition; quadratic-constrained models; endogenous benchmarks; risk and return; insight management; China; financial markets; inefficiency; performance improvement; rankings; risk controls; society; systems science; assessment methods; social systems.

DOI: 10.1504/IJSSS.2011.038936

International Journal of Society Systems Science, 2011 Vol.3 No.1/2, pp.119 - 136

Available online: 07 Mar 2011 *

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