Impact Evaluation of Exit Strategy in Fuzzy Portfolio‐based Investment

Abstract

This paper focuses on the impacts of exit strategy in existing fuzzy portfolio selection models. In the securities market, the term ‘exit’ means that the investor may sell his/her equity on account of some exogenous or endogenous incentives, especially when the security price becomes higher than his/her expectation or lower than his/her tolerance. It is a common problem that all investors need to face in the investment horizon. There have been various studies reported in the current literature employing fuzzy set theory to handle the uncertainty of portfolio selection. Nevertheless, none of these studies considers the influence caused by exit strategy which will be executed once a security price fluctuates out of the expected interval. In this paper, we first secure the future returns of each security by profit/loss exit points (prices) before rebuilding fuzzy portfolio selection models. Next, the properties of exit points are analyzed. Then a meta‐heuristic method is proposed to analyze the differences between the new models' experimental results and those of previous methods. Finally, we discuss how to assign proper exit point values to different securities based on different risk attitudes, and apply our approach to a real application on the New York Stock Exchange. © 2014 Institute of Electrical Engineers of Japan. Published by John Wiley & Sons, Inc.