Data Envelopment Analysis: application of the efficient frontier on the financial field in the European and the American scenarios,

The topic of efficiency analysis of independent organisational units has long been a major challenge for researchers and scientists around the world. In fact, in the current economic context of increasing competitiveness and dynamism, it is essential to know both the degree of efficiency compared to competitors, and the efficiency of the various internal operating units or individual dependent units. This technique, called Data Envelopment Analysis (DEA)1, can be applied in different contexts ranging from the economic to the financial one, essentially based on the identification of the best targets with which to compare the performance of various units. These can be banks, companies, insurance companies or securities portfolios, so that at the same time they can represent, evaluate and improve the positions and performance of each of them. In the light of the above, the present work uses the Data Envelopment Analysis methodology used in the financial sec- tor, in order to identify the optimal and efficient frontier of securities relating to the European and American areas which, on the basis of Harry Markowitz’s theory, represent the whole of those portfolios (known as dominant) which, for the same yield, are the least risky or which, for the same risk, are the most profitable. In order to achieve this objective, it is essential that the securities in the portfolio under study are not perfectly correlated. By comparing the frontiers obtained, through the analysis of the volatility and expected profit of each portfolio, it is possible to arrive at a knowledge of the market that is more convenient and advantageous in terms of risk/return for any investor.