A new network DEA model for mutual fund performance appraisal: An application to U.S. equity mutual funds

Mutual fund is a popular investment vehicle for investors. Investors usually judge fund manager performance relative to target benchmarks. Fund managers, on the other hand, are interested in knowing how/why they perform well or poorly relative to their peers in different aspects of fund management as well. To acquire more insights about this issue and design a comprehensive performance measure, fund management function is conceptualised as a three-stage production process. To assess overall and stage-level performance, a network data envelopment analysis model is developed. The stage-level processes are deemed to operate under two different environmental conditions-levels of risk exposure. Operation under different levels of risk exposure is modelled through conditions imposed on the intermediate measures. A new index proposed to assess linkage performance is demonstrated empirically to improve discriminatory power of performance. Further applications of the proposed model are discussed.