PERFORMANCE APPRAISAL OF PHILIPPINE MUTUAL FUNDS USING DEA APPROACH

Abstract

The paper focuses on the performance appraisal of Philippine mutual fund industry from 1999-2003 using Data Envelopment Analysis (DEA) – Malmquist productivity index. It calculates efficiency and productivity growths in a sample of bond and stock funds, balanced funds, and in the industry. DEA is a mathematical programming technique to evaluate the relative efficiency of production units and can accommodate multiple inputs and outputs. Malmquist productivity index has decomposed total factor productivity (TFP) into two components: technological change and technical efficiency change. Results show that bond and stock funds have the highest TFP growth, owing much to technical efficiency change. Bond and stock funds are technically efficient units in the production frontier as compared with balanced funds. Our findings reveal that the Philippine mutual funds industry is technologically and technically efficient. These findings have an important policy implication. Despite that the Philippine mutual funds are found to be technologically and technically efficient, they are still underdeveloped due to poor public perception, lack of information about investment funds, and the absence of proper legislative framework.