Gangless cross-evaluation in DEA: an application to stock selection

Abstract

This paper discusses the impact of ganging decision making units (DMUs) on the cross-efficiency evaluation in data envelopment analysis (DEA). A group of DMUs are said to be ganging-together if the minimum and the maximum cross-efficiency scores they give to all other DMUs are identical. This study demonstrates that the ganging phenomenon can significantly influence the cross-efficiency evaluation in favour of some DMUs. To overcome this shortcoming, we propose a gangless cross-efficiency evaluation approach. The suggested method reduces the effect of ganging and generates a more diversified list of top performing units. An application to the Tehran stock market is used to show the benefits of gangless cross-evaluation.