Data Envelopment Analyses
Mohammad Reza Alirezaee; Fatemeh Rakhshan; Bahareh Banaye khoyi
Abstract
One of the problems in portfolio selection, is choosing a stock with conflicting and incomparable objectives such as return and risk. DEA cross efficiency is one of the most useful tools in assessing performance and prioritize a number of firms that makes it possible to determine efficient units in portfolio ...
Read More
One of the problems in portfolio selection, is choosing a stock with conflicting and incomparable objectives such as return and risk. DEA cross efficiency is one of the most useful tools in assessing performance and prioritize a number of firms that makes it possible to determine efficient units in portfolio selection from different industries. Although cross efficiency is an approach for evaluating performance, it application is improved in portfolio selection. The method used in this research, calculates the (average) cross efficiency scores and considers its changes and then incorporates two statistics of cross efficiency into the mean-variance (MV) formulation of portfolio selection. This method has two advantages: One is selection of portfolios well-diversified in terms of their performance on multiple evaluation criteria, and the other is alleviation of the so-called ‘‘ganging together’’ phenomenon of DEA cross-efficiency evaluation in portfolio selection. This procedure is applied on stock portfolio selection in the Iranian stock market consist of 20 reputable companies and efficiency changes with causes over this period is examined. It is demonstrated in this paper that the selected portfolio yields higher risk-adjusted returns than two stock market index for a 9-year sample period.