Efficiency of Swedish equity funds – A DEA approach

University essay from Umeå universitet/Nationalekonomi

Author: Love Westin; [2017]

Keywords: ;

Abstract: The purpose of this study is to evaluate the efficiency of Swedish equity funds. Funds are evaluated with a model for Data Envelopment Analysis (DEA). The suggested DEA model gives a method to rate equity funds entirely based on economic theory, such as Modern Portfolio Theory and the Efficient Market Hypothesis. Contrary to many other papers, efficiency is here seen from the perspective of a risk averse consumer investing in funds, not a manager managing a fund. Moreover, in this paper the DEA approach is for the first time applied to the Swedish equity market. Previous studies of fund rating methods have found weak or no significant relationship between long term performance of funds and high fund rates e.g. as given by Morningstar rates. The method used by Morningstar is then often criticized for favouring funds with high fees. This paper thus responds to a request in the market for new ways to evaluate fund performance. In the study, a set of frontiers of the most efficient funds in the Swedish market are identified. By comparing the frontiers of efficient funds we have in addition to this identified funds in the Swedish market that both offer low fees and are efficient as well.

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