Title: Evaluating stocks in the presence of multiple criteria

Authors: Panagiotis Xidonas, George Mavrotas, John Psarras

Addresses: Laboratory of Management and Decision Support Systems, School of Electrical and Computer Engineering, National Technical University of Athens, 9, Heroon Polytechneiou Street, Athens 15780, Greece. ' Laboratory of Industrial and Energy Economics, School of Chemical Engineering, National Technical University of Athens, 9, Heroon Polytechneiou Street, Athens 15780, Greece. ' Laboratory of Management and Decision Support Systems, School of Electrical and Computer Engineering, National Technical University of Athens, 9, Heroon Polytechneiou Street, Athens 15780, Greece

Abstract: A fundamental principle of modern portfolio theory is that portfolio selection decisions are generally made using two criteria, corresponding to the first two moments of return distributions, namely the expected return and portfolio variance. One criticism over this theory, which has often been addressed both by practitioners and academics, is that it fails to embody all the decision maker|s (DM|s) objectives, through the various stages of the decision process. The aim of this paper is to present an alternative methodological approach for modelling one of the most crucial phases of the portfolio management process, the security evaluation phase. The main characteristic of the proposed approach is that it fully takes into account the inherent multidimensional nature of the problem, while allowing the DM to incorporate his preferences in the decision process. The validity of the proposed approach is tested through an illustrative application in Athens Stock Exchange.

Keywords: portfolio selection; stock evaluation; multiple criteria decision making; return distributions; expected return; portfolio variance; investment criteria; decision making; portfolio management; security evaluation; Athens Stock Exchange; stock market; Greece; decision science; information science.

DOI: 10.1504/IJIDS.2010.029905

International Journal of Information and Decision Sciences, 2010 Vol.2 No.1, pp.87 - 111

Published online: 02 Dec 2009 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article