On the Use of Data Envelopment Analysis in Assessing Local and Global Performances of Hedge Funds

Abstract:     
This paper aims to show that Data Envelopment Analysis (DEA) is an efficient tool to assist investors in multiple criteria decision-making tasks like assessing hedge fund performance. DEA has the merit of offering investors the possibility to consider simultaneously multiple evaluation criteria with direct control over the priority level paid to each criterion. By addressing main methodological issues regarding the use of DEA in evaluating hedge fund local and global performance, this paper attempts to provide investors sufficient guidelines for tailoring their own performance measure which reflect successfully their own preferences. Although these guidelines are formulated in the hedge fund context, they can also be applied to other kinds of investment funds.

Number of Pages in PDF File: 34

Keywords: hedge fund, mutual fund, data envelopment analysis, performance measures, Sharpe ratio

JEL Classification: G2, G11, G15

working papers series