Measuring the overall efficiency of SRI and conventional mutual funds by a diversification‐consistent DEA model

Abstract

This paper presents an application of data envelopment analysis (DEA) based approaches to assess the relative financial and nonfinancial efficiency of mutual funds (MFs). Our approach measures corporate sustainability (CS) of the MFs from the rating process carried out by social agencies on the constituent firms. We have modified the raw scores of the firms invested in by the MFs in order to overcome the compensatory effect when the MFs invested in both "good" and "bad" firms. For this purpose, we have used prospect theory in such a manner that the original scores awarded to the firms are modified by applying a value function. Three extensions of Branda's model are formulated. The first model measures financial efficiency, the second model measures CS efficiency and is an output-oriented DEA model, and, the third is a DEA model for measuring overall efficiency of the MFs. In the last step of the proposed methodology, the set of overallefficient MFs is ranked applying technique for order of preference by similarity to ideal solution to the two DEA scores corresponding to the two partial DEA models. The risk and return measures have been chosen so that the proposed models are consistent with the second-order stochastic dominance relation. Therefore, under a finite number of equiprobable scenarios for the rates of return, a set of conditional value at risk for several confidence levels are used as inputs of the models that consider the financial performance. The proposed approach is illustrated with real data on a set of 144 French MFs, 31 marketed as socially responsible investment MFs.

The impact of mutual funds’ ESG scores on their financial performance during the COVID-19 pandemic. A data envelopment analysis

“…Third, prior studies draw their conclusions regarding the effects of ESG criteria on the financial performance of mutual funds mainly applying a multivariate regression analysis framework (Chang et al , 2018; Derwall and Koedijk, 2009; Leite and Cortez, 2015; Nofsinger and Varma, 2014), while only few studies use DEA models to evaluate the performance of mutual funds with socially responsible criteria (Basso and Funari, 2014; Bilbao-Terol et al , 2021; Shahrour, 2022; Zhou et al , 2018). However, the latter are focused on periods before the outbreak of the COVID-19 crisis.…”

Ranking firms based on their financial and diversity performance using multiple‐stage unweighted TOPSIS

“…(2010), and Bilbao‐Terol et al. (2023) are some examples of the use of preferential weights based on the expert knowledge of the decision‐makers. Yu et al.…”

“…Weights can be determined objectively or subjectively. KarimiAzari et al (2011), Peng et al (2011), Zandi and Tavana (2011), Zhang et al (2010), andBilbao-Terol et al (2023) are some examples of the use of preferential weights based on the expert knowledge of the decision-makers. Yu et al (2011), Vahdani et al (2012), Wu et al (2009), andOrtega-Momtequín et al (2021) use analytical hierarchy process-based methods, and Stefanakis and Doumpos (2023) use methods based on ELimination Et Choice Translating REality (ELECTRE), including a sensitivity analysis on the weights.…”

Measuring the financial and social performance of French mutual funds: A data envelopment analysis approach

“…For instance, Bilbao‐Terol et al. (2017) and Bilbao‐Terol et al (2021) examine the case of European funds, particularly French mutual funds. The case of French SRMFs is of utmost interest due to the rapid increase in sustainable investment funds in France; the value of the assets under management almost doubled in 2019 to a total of EUR 278 billion 8.…”

“…The case of French SRMFs is of utmost interest due to the rapid increase in sustainable investment funds in France; the value of the assets under management almost doubled in 2019 to a total of EUR 278 billion 8. France also has one of the most developed SRI markets in Europe (Bilbao‐Terol et al., 2021). However, a rapidly evolving market such as the French mutual fund market could suffer from inefficiencies (Vidal‐García & Vidal, 2021).…”