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Prelims

Carlos Sánchez-González (Universidad EIA, Colombia)

The Efficiency of Mutual Fund Families

ISBN: 978-1-78743-800-2, eISBN: 978-1-78743-799-9

Publication date: 19 April 2018

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Citation

Sánchez-González, C. (2018), "Prelims", The Efficiency of Mutual Fund Families, Emerald Publishing Limited, Leeds, pp. i-xxiii. https://doi.org/10.1108/978-1-78743-799-920181002

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Emerald Publishing Limited

Copyright © 2018 Emerald Publishing Limited

Half Title Page

The Efficiency of Mutual Fund Families: Insights from the Spanish Market

Title Page

The Efficiency of Mutual Fund Families: Insights from the Spanish Market

By

Carlos Sánchez-González

Universidad EIA, Colombia

United Kingdom – North America – Japan – India – Malaysia – China

Copyright Page

Emerald Publishing Limited

Howard House, Wagon Lane, Bingley BD16 1WA, UK

First edition 2018

Copyright © 2018 Emerald Publishing Limited

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No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

ISBN: 978-1-78743-800-2 (Print)

ISBN: 978-1-78743-799-9 (Online)

ISBN: 978-1-78743-983-2 (Epub)

Dedication

I want to dedicate this book to my wife Doris and my sons, Nicolas and Juan Diego; their love and unconditional support were essential to fulfill this project. Thank you God for being present in our lives and allowing us to have so many blessings.

I also want to dedicate this achievement to my mother and my father (†2017); without the adventurous vision that they gave me, I could not have fulfilled my dreams.

List of Figures

Part I: The Efficiency of Mutual Fund Families: Using a Slacks-based Measure
Chapter 2
Figure 1 Relationships between Productivity, Efficiency, and Effectiveness. 9
Figure 2 Production Frontier and Technical Efficiency. 10
Figure 3 Differences of Returns to Scale. 17
Chapter 3
Figure 4 MFMC Interactions Based on Berkowitz and Qiu (2003). 37
Figure 5 Multi-management Stages Model for an MFMC. 38
Figure 6 Multi-management Stages Model for an MFMC (Including Variables). 40
Chapter 4
Figure 7 Evolution of the Mutual Fund Industry (Example Spanish Market). 50
Part II: Further Evaluation of Efficiency of Mutual Fund Management Companies
Chapter 2
Figure 8 Convex Set. 124
Figure 9 Convex Set with Two Shps. 125
Figure 10 Random Search around Efficient DMUs (Tone, 2010). 131
Figure 11 Comparative Graphs between SBM and Variation I Scores for 2005. 134
Figure 12 Comparative Graphs between SBM and Variation I Scores for 2009. 135
Figure 13 Distinction between Agglomerative and Divisive Techniques. 146
Figure 14 Dendrogram (Divisive Analysis) DIANA for 2005. 151
Figure 15 Dendrogram (Divisive Analysis) DIANA for 2006 152
Figure 16 Dendrogram (Divisive Analysis) DIANA for 2007 153
Figure 17 Dendrogram (Divisive Analysis) DIANA for 2008 154
Figure 18 Dendrogram (Divisive Analysis) DIANA for 2009 155
Chapter 3
Figure 19 Dendrogram DIANA of Efficiency Scores for Stage 1 of 2005. 170
Figure 20 Dendrogram DIANA of Efficiency Scores for Stage 1 of 2006. 171
Figure 21 Dendrogram DIANA of Efficiency Scores for Stage 1 of 2007. 172
Figure 22 Dendrogram DIANA of Efficiency Scores for Stage 1 of 2008. 173
Figure 23 Dendrogram DIANA of Efficiency Scores for Stage 1 of 2009. 174
Figure 24 Dendrogram DIANA of Efficiency Scores for Stage 2 of 2005. 175
Figure 25 Dendrogram DIANA of Efficiency Scores for Stage 2 of 2006. 176
Figure 26 Dendrogram DIANA of Efficiency Scores for Stage 2 of 2007. 177
Figure 27 Dendrogram DIANA of Efficiency Scores for Stage 2 of 2008. 178
Figure 28 Dendrogram DIANA of Efficiency Scores for Stage 2 of 2009. 179
Figure 29 Dendrogram DIANA of Efficiency Scores for Overall Efficiency of 2005. 180
Figure 30 Dendrogram DIANA of Efficiency Scores for Overall Efficiency of 2006. 181
Figure 31 Dendrogram DIANA of Efficiency Scores for Overall Efficiency of 2007. 182
Figure 32 Dendrogram DIANA of Efficiency Scores for Overall Efficiency of 2008. 183
Figure 33 Dendrogram DIANA of Efficiency Scores for Overall Efficiency of 2009. 184

List of Tables

Part I: The Efficiency of Mutual Fund Families: Using a Slacks-based Measure
Chapter 2
Table 1 Comparison between Basic DEA Models. 24
Chapter 3
Table 2 Set of Inputs and Outputs. 40
Chapter 4
Table 3 Descriptive Statistics of the Data (31st December). 48
Table 4 Efficient Companies by Stage and Variable (%). 53
Table 5 SBM-efficiency under CRS for 2005. 54
Table 6 SBM-efficiency under CRS for 2006. 60
Table 7 SBM-efficiency under CRS for 2007. 66
Table 8 SBM-efficiency under CRS for 2008. 72
Table 9 SBM-efficiency under CRS for 2009. 78
Table 10 Average CRS-SBM Scores and Spearman Rank Correlation. 87
Table 11 Average VRS-SBM Scores and Spearman Rank Correlation. 90
Table 12 Spearman Rank Correlation between CRS-SBM and VRS-SBM Eff. Scores. 90
Table 13 Stage 1 — Robustness Analysis Based on Labor Data. 93
Table 14 Stage 1 — Robustness Analysis Based on the Capital Effort Data. 94
Table 15 Overall Efficiency — Robustness Analysis Based on the Capital Effort Data. 95
Appendix A
Table 16 Comparative CRS-SBM Scores for 2009 with Different Measures of Labor 100
Table 17 Comparative CRS-SBM Scores for 2009 with Different Measures of Capital 106
Table 18 Comparative CRS-SBM Scores for 2009 with Different Measures of Capital 112
Part II: Further Evaluation of Efficiency of Mutual Fund Management Companies
Chapter 2
Table 19 Comparative Findings between SBM and Variation I Scores. 133
Table 20 Average CRS-variation I Scores and Spearman Rank Correlation. 137
Table 21 Maximal Friends Found for 2009. 139
Table 22 Friends and Maximal Friends (Variation IV). 140
Table 23 Comparative Findings between Variation I and Variation II Scores. 141
Table 24 Average CRS-variation II Scores and Spearman Rank Correlation. 142
Table 25 Cluster Classification by Year. 157
Table 26 Descriptive Statistics of Clusters. 158
Table 27 Efficient Companies by Stage. 159
Table 28 Efficient Companies by Clusters. 160
Chapter 3
Table 29 Efficiency Persistence for Stage 1 Based on 2 × 2 Contingency Tables. 189
Table 30 Efficiency Persistence for Stage 2 Based on 2 × 2 Contingency Tables. 189
Table 31 Efficiency Persistence for Overall Efficiency Based on 2 × 2 Contingency Tables. 190
Table 32 Performance Persistence for Stage 1 Based on 4 × 4 Contingency Tables. 191
Table 33 Performance Persistence for Stage 2 Based on 4 × 4 Contingency Tables. 192
Table 34 Performance Persistence for Overall Efficiency Based on 4 × 4 Contingency Tables. 193
Table 35 Aggregate Mean and Deviation Value by Number of Employees. 195
Table 36 Aggregate Mean and Deviation Value by Shareholder Equity. 196
Table 37 Aggregate Mean and Deviation Value by Assets Managed. 197
Table 38 Aggregate Mean and Deviation Value by Number of Funds. 198
Table 39 Comparison of Mean Values between “Top W–Top W” and “Bott L–Bott L” Companies. 199
Appendix B
Table 40 Variation I Efficiency under CRS for 2009 206
Table 41 Variation II Efficiency under CRS for 2009 212
Table 42 Variation III Efficiency under CRS for 2009 218

About the Author

Dr. Carlos Sánchez-González is a Full-time Professor at the Universidad EIA, Colombia. He holds a first-class honors bachelor’s degree in Financial Engineering from the Universidad Autónoma de Bucaramanga — UNAB, Colombia. Then, he obtained a competitive scholarship by Santander Bank for young Research Professor from Latin America, and he completed his MSc studies in Accounting and Finance, and presented his PhD dissertation in Finance Program in Spain. He obtained the Financial Research Award (Accésit) “Antonio Dionis Soler” 2015 by the Foundation of Financial Studies (FEF) and Spanish Institute of Financial Analysts (IEAF). His research on efficiency measurement in organizations has been presented at Congresses in Colombia, Ecuador, and Spain. He has published papers on recent innovations in the DEA methodology, such as “The efficiency of mutual fund companies: Evidence from an innovative Network SBM Approach,” in the Omega Journal of Management Science, under the co-authorship with Professor Vicente and Professor Sarto (University of Zaragoza).

He served as a Research Professor in the ESAI Business School, Universidad de Especialidades Espiritu Santo — UEES; Assistant Professor at the Faculty of Administrative Sciences, Universidad Tecnológica Equinoccial — UTE; Visiting Professor at the Business School, Universidad San Francisco de Quito; Visiting Researcher at the College of Science and Mathematics, Montclair State University; and Visiting Professor at University of Zaragoza.

He worked as Chief Financial at Automotores Continental Company S.A. (the largest Chevrolet dealer in Ecuador), Head of Budgets at Proinco Finance Corporation S.A., Ecuador, and Financial Support Engineer at Bucaramanga Corporation Entrepreneurship — Incubator of Technology-based Firms, Colombia.

Preface

The mutual fund industry has witnessed remarkable growth worldwide during the last decade. A significant effect on the savings patterns of the countries has been promoted by investment alternatives offered by mutual funds. Mutual fund management companies have suffered both great expansion and contraction periods in the same manner as other financial institutions. The need to analyze the efficiency of financial institutions has instigated an important line of research in the financial literature using alternative approaches. However, the emphasis of these studies has been typically on the banking and insurance industry rather than other specific companies related to the investment business. In addition, research on the mutual fund industry has been primarily focused on mutual funds rather than on their management companies. For that reason, this book aims to fill this gap in the empirical knowledge of the efficiency obtained by mutual fund management companies. In this sense, within the practical part the book will contrast the efficiency level achieved by companies in the management and distribution of mutual funds to establish their core competence. The book analyzes the potential interaction between this core competency and the overall efficiency results obtained by the fund company. In the empirical sections, the book shows research that analyzes the Spanish case, which is one of the most relevant fund industries in the Euro market. Therefore, to better understand the rationale behind the mutual fund industry, this study offers new insights into issues that have not been studied before in the European market.

This book develops an innovative model that considers the different management stages of mutual fund families, also known as mutual fund companies in the context of study, thereby overcoming the traditional dispute between the different approaches used in banking and insurance research. However, the variables considered in this model are unique and specific to mutual fund companies rather than a mere replication of the variables used in the banking and insurance literature.

Data Envelopment Analysis (DEA) is the methodology used to evaluate this model. This frontier method is one of the most widely used methods in studies of technical efficiency, but the specific technique used in this study is one of the most recent innovations in this field and overcomes the problem of the high market concentration in the Spanish mutual fund industry. Specifically, this book is one of the first empirical applications of slacks-based measure (SBM) variations, which represents an important and recent contribution to DEA methodology. Additionally, the persistence analysis of the efficiency achieved by the different management stages considered in the fund company model is revealed to be an original contribution. Moreover, non-parametric statistics based on contingency tables have been developed based on an innovative cluster analysis of efficiency scores.

The book consists of two parts. The first part initially includes the basic concepts, a brief explanation of the basic DEA models, and a review of the most important applications to financial institutions. We then formulate the multi-management stage model and the unique set of fund industry-specific variables used in this research. Subsequently, the efficiency of Spanish mutual fund families is evaluated using the SBM approach. Finally, this part concludes and summarizes the major findings of the efficiency analysis.

The second part of the book reviews the major concepts of the variations in the original SBM approach and the more accurate empirical results of these SBM variants in the Spanish mutual fund industry. Subsequently, this part illustrates the persistence phenomenon to further determine whether any relevant factors may drive the efficiency results previously obtained. Finally, the second part presents conclusions and a summary of the major findings.

Acknowledgments

Thanks to my mentors, Jose Luis Sarto and Luis Vicente, for their constant support, enthusiasm, dedication, and valuable contributions. I also want to thank Laura Andreu and Cristina Ortiz for their important assistance in the second part of the study.

I am grateful to the University of Zaragoza, the Accounting and Finance Department, for its financial support, and the Santander Bank for mobility grants to Latin American students in doctoral programs during the period 2010–2013. Finally, I want to thank the Universidad EIA for the great opportunity it gave me to continue this project.

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