Prajnan, Vol. XLIII, No. 1, 2014-15
© 2014-15, NIBM, Pune
Interval Estimation of Mutual Fund Performance Ram Pratap Sinha Received: 21-08-2013 Accepted: 14-03-2014
The existing literature on portfolio benchmarking includes two approaches – one based on the modern portfolio theory (which relies on normality of return distribution) and another on the concept of stochastic dominance. The present study seeks to integrate both of them in the context of nonparametric framework of performance using the concept of stochastic dominance. Moreover, the study makes interval estimation of performance by using bootstrap DEA. Keywords: Mutual Fund; Stochastic Dominance; Endogenous Benchmarking; Distance Function; Homogenous Bootstrap. JEL Classification: C-61, D-21,G-23.
Section I Introduction Mutual funds provide an important outlet for small investors who are averse to taking direct exposure to the capital market. Analysis of fund performance, therefore, facilitates informed investment decision making. Performance benchmarking, however, requires the design of an appropriate risk-return framework in the context of which fund performance is evaluated. The received literature on risk-return reveals the existence of two parallel strands – one based on the mainstream modern portfolio theory and the other resting on the concept of stochastic dominance leading to the exploration of upside potential or downside risk. A salient feature of both the approaches is the use of ratio analysis for the purpose of performance evaluation. The present study takes the conventional approach as the point of departure and seeks to integrate both approaches by accommodating multiple input and output indicators. Performance evaluation is then made by using Data Envelopment Analysis (DEA). Moreover, since DEA provides a point estimate of performance only devoid of any statistical properties the present study extends the analysis by using bootstrap analysis for the purpose of interval estimation. Dr Ram Pratap Sinha (
[email protected]) is Associate Professor of Economics, Government College of Engineering and Leather Technology, Kolkata, India. The author hereby acknowledges the financial assistance received from ICSSR sponsored research project titled "Endogenous Benchmarking of Indian Mutual Funds". However, the usual disclaimer applies.
