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A data envelopment analysis of mutual fund performance in Croatia

Mutual funds are an important investment vehicle for retail and institutional investors on developed financial markets. Market of mutual funds is very competitive and information about performance of individual mutual fund play an important role. The financial crisis had significant impact on the mutual funds, especially in Croatia, where its net assets has not yet recovered to pre-crisis values, unlike the European Union countries. Therefore, the aim of this paper is to estimate overall performance of the mutual funds in Croatia in terms of their relative efficiency based on several performance indicators using data envelopment analysis (DEA). DEA is a non- parametric method that enables obtaining an overall relative efficiency score given more risk, cost or reward or profitability measures. Since some standard mutual fund performance indicators are mostly based on CAPM paradigm that demands rigid assumptions and questionable measures, we try to overcome such limitations by applying more appropriate risk and reward measures, such as VaR, ES and stochastic dominance, adding also related costs in the perspective. In this way, we develop adjusted DEA-based mutual fund performance index. Obtained results from DEA approach are compared to various indicators of absolute and relative risk-adjusted performance of mutual funds. The analysis is divided on three periods, pre- crisis period, crisis period and post crisis period with different conclusions of mutual funds’ performance in Croatia. The relative progress of funds’ performance within the period of analysis is also evaluated by Malmquist index. Results allow to measure performance of individual mutual fund within defined periods and their overall progress, as well as to identify mutual fund(s) that can be considered as benchmarks for separate group of different mutual fund by investment strategy. The analysis includes 55 UCITS funds in Croatia, in the period from the beginning of 2005 until the end of 2015, and it is conducted on weekly data of share prices, available from Bloomberg terminal.

Institutional investors ; data envelopment analysis ; mutual fund performance ; DEA mutual fund performance indexes ; Croatia

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