2134/14797 John D. Lamb John D. Lamb Kai-Hong Tee Kai-Hong Tee Data envelopment analysis models of investment funds Loughborough University 2014 Data envelopment analysis Investment fund Diversification Coherent risk measure Returns to scale Stochastic dominance Business and Management not elsewhere classified 2014-06-09 14:21:56 Journal contribution https://repository.lboro.ac.uk/articles/journal_contribution/Data_envelopment_analysis_models_of_investment_funds/9503219 This paper develops theory missing in the sizable literature that uses data envelopment analysis to construct return-risk ratios for investment funds. It explores the production possibility set of the investment funds to identify an appropriate form of returns to scale. It discusses what risk and return measures can justifiably be combined and how to deal with negative risks, and identifies suitable sets of measures. It identifies the problems of failing to deal with diversification and develops an iterative approximation procedure to deal with it. It identifies relationships between diversification, coherent measures of risk and stochastic dominance. It shows how the iterative procedure makes a practical difference using monthly returns of 30 hedge funds over the same time period. It discusses possible shortcomings of the procedure and offers directions for future research. © 2011 Elsevier B.V. All rights reserved.