Abstract
The present study is an attempt toward evaluating the performance of portfolios and asset selection using cross-efficiency evaluation. Cross-efficiency evaluation is an effective way of ranking decision making units (DMUs) in data envelopment analysis (DEA). The most widely used approach is to evaluate the efficiencies in each row or column in the cross-efficiency matrix with equal weights into an average cross-efficiency score for each DMU and consider it as the overall performance measurement of the DMU. This paper focuses on the evaluation process of the efficiencies in the cross-efficiency matrix and proposes the use of ordered weighted averaging (OWA) operator weights for cross-efficiency evaluation. The OWA operator weights are generated by the minimax disparity approach and allow the decision maker (DM) or investor to select the best assets that are characterized by an orness degree. The problem consists of choosing an optimal set of assets in order to minimize the risk and maximize return. This method is illustrated by application in mutual funds and weights are obtained via OWA operator for making the best portfolio. The finding could be used for constructing the best portfolio in stock companies, in various finance organization, and public and private sector companies.
Highlights
In financial literature, a portfolio is an appropriate mix of investments held by an institution or private individuals
This paper focuses on the evaluation process of the efficiencies in the cross-efficiency matrix and proposes the use of ordered weighted averaging (OWA) operator weights for cross-efficiency evaluation
The OWA operator weights are generated by the minimax disparity approach and allow the decision maker (DM) or investors to select the best assets that are characterized by an orness degree [18]
Summary
A portfolio is an appropriate mix of investments held by an institution or private individuals. Since there are a large number of assets to invest in, this objective leads to select the best assets via cross-efficiency matrix by using OWA weighted. Cross-efficiency evaluation, proposed by Sexton et al, [6] is the effective way of ranking decision making units (DMUs) It allows the overall efficiencies of the DMUs to be evaluated through self- and peer-evaluations. The use of OWA operator weights for the assets cross-efficiency allows the weights to be reasonably allocated between self- and peer-evaluated efficiencies by investor’s control [17]. The rest of the paper is organized as follows: Section 2 briefly reviews the portfolio performance literature, OWA operators, and their weight determination methods, the cross-efficiency evaluation in DEA.
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