Use of DEA cross-efficiency evaluation in portfolio selection: An application to Korean stock market
- Authors
- Lim, Sungmook; Oh, Kwang Wuk; Zhu, Joe
- Issue Date
- 1-7월-2014
- Publisher
- ELSEVIER SCIENCE BV
- Keywords
- Data envelopment analysis (DEA); Cross-efficiency; Portfolio selection; Stock market
- Citation
- EUROPEAN JOURNAL OF OPERATIONAL RESEARCH, v.236, no.1, pp.361 - 368
- Indexed
- SCIE
SCOPUS
- Journal Title
- EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
- Volume
- 236
- Number
- 1
- Start Page
- 361
- End Page
- 368
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/97985
- DOI
- 10.1016/j.ejor.2013.12.002
- ISSN
- 0377-2217
- Abstract
- We propose a way of using DEA cross-efficiency evaluation in portfolio selection. While cross efficiency is an approach developed for peer evaluation, we improve its use in portfolio selection. In addition to (average) cross-efficiency scores, we suggest to examine the variations of cross-efficiencies, and to incorporate two statistics of cross-efficiencies into the mean-variance formulation of portfolio selection. Two benefits are attained by our proposed approach. One is selection of portfolios well-diversified in terms of their performance on multiple evaluation criteria, and the other is alleviation of the so-called "ganging together" phenomenon of DEA cross-efficiency evaluation in portfolio selection. We apply the proposed approach to stock portfolio selection in the Korean stock market, and demonstrate that the proposed approach can be a promising tool for stock portfolio selection by showing that the selected portfolio yields higher risk-adjusted returns than other benchmark portfolios for a 9-year sample period from 2002 to 2011. (C) 2013 Elsevier B.V. All rights reserved.
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