Portfolio selection based on financial efficiency and comperative risk analysis: An application with super efficiency model

The importance of utilization of the resources more effectively by the enterprises steadily rises under increasing competition domain. This competition domain leads the enterprises to continue their activities by using financial resources effectively. The financial efficiency comprises great importance not only from the aspect of enterprises but also from the aspect of investors. The investors, who aim to obtain maximum revenue and minimum risk, will attempt to compose a portfolio consisting of financially effective companies. In this study, Data Envelopment Analysis was applied as an alternative portfolio selection method for the relative measurement and assessment of manufacturing industry. The decision-making units of the study consist of 38 companies that have been trading under Borsa Istanbul (Stock Exchange of Istanbul) in the manufacturing sector. A set of variables was determined including 6 inputs and 6 outputs by benefiting from the yearend financial tables of companies in the manufacturing sector between 2002-2012. In order to measure the financial efficiency for the selected companies, Super Efficiency Model was used within frame of Data Enveloping Analysis. In accordance with the obtained results with Super Efficiency Model in 2002, an efficient and an inefficient portfolio selection was separately made from 19 companies having the highest level of efficiency and 19 companies having the lowest level of efficiency, respectively in 2002. Having formed the return series of composed portfolios, total value of annual risks were computed within the framework of 10-day withholding period and 99 % confidence interval, which are the present constraints of Council of Banking Regulation and Supervision Agency (BRSA). Consequently, the relationships between efficiency, risk and return levels of selected efficient and inefficient portfolios were analyzed. Keywords: Portfolio Selection, Super Efficiency, Value at Risk (VaR) and Return