<abstract xmlns="http://www.w3.org/1999/xhtml"><p>Efficiency measurement of economic phenomena is of great importance to economists. Known terms and concepts from microeconomic theory and Data Envelopment Analysis regarding efficiency have been developed and adapted to cater to different questions and areas of economics. This paper focuses on applications in the area of finance, more specifically, portfolio optimization and Markowitz model. The paper has two goals. First is to give a concise overview of the theoretical and empirical research regarding Luenberger shortage (distance) function in portfolio optimization. The second goal is to empirically evaluate the efficiency of a portfolio on the Sarajevo Stock Exchange (SSE). The contribution of the paper is the first comprehensive evaluation of sources of inefficiencies of a portfolio which is not positioned on the efficient frontier on the SSE, as well as the Balkan region. The results of the analysis show that efficiency can be obtained with rebalancing the initial portfolio with the inclusion of transaction costs as well.</p></abstract>

Efficiency measurement of economic phenomena is of great importance to economists. Known terms and concepts from microeconomic theory and Data Envelopment Analysis regarding efficiency have been developed and adapted to cater to different questions and areas of economics. This paper focuses on applications in the area of finance, more specifically, portfolio optimization and Markowitz model. The paper has two goals. First is to give a concise overview of the theoretical and empirical research regarding Luenberger shortage (distance) function in portfolio optimization. The second goal is to empirically evaluate the efficiency of a portfolio on the Sarajevo Stock Exchange (SSE). The contribution of the paper is the first comprehensive evaluation of sources of inefficiencies of a portfolio which is not positioned on the efficient frontier on the SSE, as well as the Balkan region. The results of the analysis show that efficiency can be obtained with rebalancing the initial portfolio with the inclusion of transaction costs as well.

Performance Gauging of Portfolio: Luenberger Distance Function Approach on Sarajevo Stock Exchange

Department of Mathematics, Faculty of Economics and Business

South East European Journal of Economics and Business

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Efficiency measurement of economic phenomena is of great importance to economists. Known terms and concepts from microeconomic theory and Data Envelopment...

Performance Gauging of Portfolio: Luenberger Distance Function Approach on Sarajevo Stock Exchange

Published Online: Aug 06, 2019

Page range: 92 - 100

DOI: https://doi.org/10.2478/jeb-2019-0007

Keywords
Markowitz model, efficient frontier, measuring efficiency, distance function, Luenberger’s shortage function

© 2019 South East European Journal of Economics and Business, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Performance Gauging of Portfolio: Luenberger Distance Function Approach on Sarajevo Stock Exchange

Published Online: Aug 06, 2019

Page range: 92 - 100

DOI: https://doi.org/10.2478/jeb-2019-0007

KeywordsMarkowitz model, efficient frontier, measuring efficiency, distance function, Luenberger’s shortage function

© 2019 South East European Journal of Economics and Business, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
Markowitz model, efficient frontier, measuring efficiency, distance function, Luenberger’s shortage function