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
The US factors are drawn from French’s website: http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/.
An efficient economic outcome is a situation where one party’s position cannot be improved
without making another party’s position worse.
We omit the tables for the sake of brevity. They are, however, available from the authors upon request.
We do not report the coefficient estimates here for brevity but they are available from the authors upon request.
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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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DOI: https://doi.org/10.1007/s10479-017-2429-z