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The efficiency of mutual funds

  • Multiple Objective Optimization
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Abstract

This paper analyzes the short-term market efficiency of the mutual fund industry around the world. Using a unique database of worldwide domestic equity funds, it employs a parametric (regression model) and non-parametric (data envelopment analysis (DEA) model) approaches to establish a relation between cost (expense ratio, turnover, loads, and risk) and benefit (return) of mutual funds. The empirical results of the parametric approach show a statistically significant negative relationship between expenses and risk-adjusted performance across countries. When we reexamine this relationship using a non-parametric approach, we show, in contrast to our previous result, a positive relationship between expenses and risk-adjusted performance. Thus, using the DEA methodology, we find strong evidence that equity mutual funds around the world are approximately mean–variance efficient.

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Notes

  1. The US factors are drawn from French’s website: http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/.

  2. An efficient economic outcome is a situation where one party’s position cannot be improved

    without making another party’s position worse.

  3. We omit the tables for the sake of brevity. They are, however, available from the authors upon request.

  4. We do not report the coefficient estimates here for brevity but they are available from the authors upon request.

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Authors and Affiliations

  1. Facultad de Ciencias Empresariales y del Trabajo, Universidad de Valladolid, Campus Universitario Duques de Soria, Soria, Spain

    Javier Vidal-García

  2. Departamento de Organización de Empresas, Facultad de Ciencias Económicas y Empresariales, Universidad Complutense de Madrid, Campus de Somosaguas, Pozuelo de Alarcón, Madrid, Spain

    Marta Vidal

  3. Champagne School of Management, Groupe ESC Troyes en Champagne, 217, Av. Pierre Brossolette, CS 20710, 10002, Troyes CEDEX, France

    Sabri Boubaker

  4. International School, Vietnam National University, Hanoi, Vietnam

    Sabri Boubaker

  5. École Supérieure des Sciences Economiques et Commerciales de Tunis (ESSEC Tunis), 4, Rue Abou Zakaria El Hafsi, Montfleury, 1028, Tunis, Tunisia

    Majdi Hassan

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  1. Javier Vidal-García
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  2. Marta Vidal
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  3. Sabri Boubaker
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Correspondence to Javier Vidal-García.

Additional information

This paper was written while Sabri Boubaker was visiting professor in Finance at the International School, Vietnam National University, Hanoi, Vietnam.

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Vidal-García, J., Vidal, M., Boubaker, S. et al. The efficiency of mutual funds. Ann Oper Res 267, 555–584 (2018). https://doi.org/10.1007/s10479-017-2429-z

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