Precious metal mutual fund performance appraisal using DEA modeling

The purpose of this paper is to evaluate the performance of a sample of sixty-two precious metal mutual funds by applying a two-stage procedure. In the first stage, data envelopment analysis (DEA) is used to measure the relative efficiency of funds. In the second stage, a Tobit model is employed to identify the drivers of performance. The purpose for and intended contribution of this paper is twofold: to provide consolidated measures of relative performance of precious metal mutual funds using for first time the DEA framework and to explain fund performance by employing a Tobit model. Correlation results among DEA-based performance measures and traditional indicators of fund performance (Sharpe ratio and Jensen's α) are mixed; no correlation has been found for the Sharpe ratio; whereas in the case of Jensen's α, the correlation is not high. Moreover, the mean-variance efficiency hypothesis holds for the inefficient funds of the sample. In addition, DEA-based fund performance can be explained by fund size, fund persistence, and beta coefficient.