Performance Evaluation for Funds with Lock-up Periods
Generally, the evaluation methods of fund efficiency mainly include index method and frontier method. Frontier methods were mostly based on the mean-variance model proposed by Markowitz (1952), and they could take into account the preference of investors and provide a variety of possible improvements for inefficient funds, while index methods have no such advantages. However, some special funds possess lock-up periods. For example, Chinese short-term mutual funds (CSTMF), a kind of short-term mutual funds with different lock-up periods, will automatically roll over after the lock-up periods to restart the funds unless instructed to terminate. Investing such funds will generate the opportunity cost for the investors, and the liquidity impacts of different CSTMF will depend on their lock-up periods. Therefore, in order to evaluate the funds with lock-up periods properly, expanding mean-variance framework by introducing liquidity risk is necessary. This research will mainly utilize appropriate Data Envelopment Analysis (DEA) models to evaluate the efficiency of the funds from the perspective of investors, and thereby provide valuable investment advice and further extend the techniques to more general investments with lock-up periods.