Common stock portfolio selection: a multiple criteria decision making methodology and an application to the Athens Stock Exchange

Abstract

An integrated multiple-criteria methodological framework is proposed to support decisions that concern the selection of common stock portfolios. At the first stage of the methodology, two multiple-criteria methods are employed, within the context of the outranking relations theory, towards the initial appraisal of the stocks that are examined. We then utilize a non-linear optimization model, to generate portfolios that consist of the stocks that are classified as those with the optimal characteristics, during of the first stage. Finally, the portfolios designed at the previous stage are evaluated by using a wide set of well-known sophisticated evaluation criteria. The preferences and experiences of professionals and experts in the field of portfolio management were taken into consideration, through all the stages of the process. The validity of the above methodology is tested through a large scale illustrative application on the stocks that constitute the FTSE-140 index of the Athens Stock Exchange. The advantages of the proposed model against contextual approaches are finally stressed.

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An integrated multi-objective Markowitz–DEA cross-efficiency model with fuzzy returns for portfolio selection problem

“…Yu and Lee [11] considered skewness, kurtosis and short selling in addition to return and risk in portfolio selection and proposed five portfolio rebalancing models by using some or all of these criteria. Xidonas et al [12] proposed an integrated multiple-criteria approach for portfolio selection. First, they applied two multiple-criteria methods to gain the initial appraisal of the stocks.…”

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“…This paves the way to use the MCDM frameworks which enable the decision maker to rank the DMUs in tune with a number of criteria as provided by a decision maker. Over the years, researchers (Tsao, 2003;Xidonas et al, 2009 (Tsao, 2006;Ballestero and Pla-Santamaria, 2003;Parra et al, 2001;Ehrgott et al, 2004;Ogryczak, 2000) also attempted to construct and solve the portfolio choice related decision through mathematical programs. While doing the performance-based assessment of the stocks for portfolio selection, researchers put emphasis on both the fundamental as well as return based parameters.…”