Celebrating Success – Professor Darren Duxbury

Congratulations to Professor Darren Duxbury, whose paper “Mutual fund tournaments: a network DEA model using interim rankings to forecast risk-taking and fund inflows” has been published in the Journal of the Operational Research Society,

The research is part of an international collaboration with coauthors from University of Zaragoza, Spain, that stems from supervision of a visiting international PhD student (Beatrice Boumda, University of Zaragoza) as an Occasional PGR student at Newcastle University. 

The project is an example of behavioural OR with application to the real-world problem of rank-based tournament behaviour in the mutual fund industry.

The paper introduces a nuanced tournament model for the mutual fund industry.  We divide tournament behaviour into three stages: how managers react to past performance in terms of portfolio risk, how these risk changes impact subsequent performance, and how these performance changes attract investor money inflows.  We find that an intense reaction to mid-year ranking does not directly influence subsequent inflows if this reaction has not efficiently improved the year-end ranking.  Our network captures this complex structure from managers’ risk-taking reaction through to investor money inflows.

Abstract

Investors are attracted to well-performing funds, with the top-performing receiving a disproportionately high share of money inflows. This behaviour, combined with incentives like status and monetary rewards, drives the tournament effect, whereby fund managers adjust their portfolio risk to either catch up with competitors or lock their position. Data Envelopment Analysis (DEA) is useful for studying this complex behaviour because it does not assume a predetermined relationship between variables. In this study, we use the Network DEA approach to assess and forecast how efficiently mutual funds compete in this tournament. We propose and test a model with three stages: reacting to mid-year rankings, improving year-end rankings, and receiving inflows in the subsequent quarter. This study is the first to use DEA to examine dynamic behaviour in mutual fund tournaments. Our findings show that managers who improve their year-end ranks compared to their mid-year ranks are more likely to attract inflows efficiently. However, changes in portfolio beta, concentration, and equity exposure are not directly linked to the rewards at the end of the tournament. Our results remain consistent across different time frames and variable specifications.

The paper is available at https://doi.org/10.1080/01605682.2026.2619030