Evaluation and comparison of management strategies by Data Envelopment Analysis with an application to mutual funds
Year: 2007
Type: dissertation
Abstract: A new categorical schema for strategic management is developed; a methodology \nfor its implementation is elaborated; an application to mutual funds based on microeconomic \ntheory is demonstrated; and results which establish quantitative measures for \nevaluating strategies, improve measures of managerial performance, and establish a new \nviii \nmethod of evaluating portfolio performance with guidance for potential mutual fund \nshareholders is presented. \nThe evaluation of strategies themselves depends fundamentally on distinguishing \nthem from their execution, from their realization in practice. The accounting definition \nof strategy, “a plan of action used to guide or control other plans of action” finds an \nobservable, indeed measurable, example in the strategic choices of mutual funds, which \nare required by law to declare and conform to the general strategy by which they conduct \ninvestment management. \nThe methodology to exploit the declared strategies and performance data of mutual \nfunds is Data Envelopment Analysis (DEA), a nonparametric linear programming \nmethod of analysis for use with empirical data. By producing a piecewise linear frontier \nbased on the Pareto-Koopmans efficient performers, DEA provides a basis for measuring \nperformances and facilitates sensitivity analysis. Data Envelopment Analysis measures \nassume no prior, underlying functional form (such as regression equations or production \nfunctions) to relate input to output or to other variables. \nAn evaluation of a selected group of mutual funds illustrates the general DEA \nmethod and evaluates the actual performance of the funds. Then a new application \ninvolving an extended, three-stage Data Envelopment Analysis separates the performance \nof the investment strategies from the effects of managerial shortcomings and abilities to \nimplement the strategies. This makes it possible to separately identify and evaluate what \na strategy can accomplish. It also makes it possible to evaluate separately short-run from \nix \nlong-run performance. Finally, DEA identifies benchmarking possibilities for removing \nthese short-run deficiencies. \nThis new method for evaluating strategies and shortcomings in performance is \ndemonstrated by application to mutual funds, which display striking contrasts in \nmanagerial performance and strategic potential. Although demonstrated with mutual \nfunds, this method is not restricted to such applications. Indeed, the methods in this \nthesis provide a new way of evaluating investment potentials by distinguishing between \nactual short-run performance and long-run potentials.
Author: Chester L. Wilson
Language: English
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2126971288