Stochastic frontiers of efficiency for Brazilian investment funds: a panel data analysis

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Foundations, methodological and empirical possibilities of measurement and analysis in the performance of financial investments within investment funds have been developed since they were once introduced in the 1970s, thus establishing a path of growing acceptance in financial markets and universities’ academies. The first approaches over the efficiency of these funds, considering their stochastic implications, occurred in the late 1990s and have evolved with the help of SFA – Stochastic Frontier Analysis, although it still needs more careful verification. This article measured and analyzed the stochastic frontier of efficiency over 33 different Brazilian investment funds from 2012 to 2015. For doing so, Battese and Coelli’s (1995) specifications was used. It shows the effects of inefficiencies, which are defined as explicit functions of specific factors in the context of panel data funds. They are estimated by the maximum likelihood method. Sharpe ratios (SR) were also calculated for comparative purposes. Based on these two indicators (SFA and SR), the most recommendable funds to invest and the ones in which the application should not be performed were identified. Such procedures have stimulated the necessary and promising studies, as well as future researches, which, in turn, may establish new methodological formulation as an efficient and effective instrument to choose the best and the safest funds to invest.

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    • Table 1. Descriptive analysis
    • Table 2. Result of the stochastic frontier panel estimation on funds efficiency, defined by Equations (11) and (12)
    • Table 3. Stochastic frontier efficiency rates (SFER) of funds between the years 2012–2015 by tercile in descending order
    • Table 4. Sharpe Indexes (SI) of the funds in the years 2012–2015 by tercile in descending order