Portfolio Selection using Data Envelopment Analysis with common weights

Subject Areas : Data Envelopment Analysis

A. Alinezhad ¹ , M. Zohrebandian ² , F. Dehdar ³

1 -
2 - Islamic Azad University Karaj Branch, Department of Mathematics
3 -

Received: 2010-01-25 Accepted : 2010-02-25 Published : 2010-03-01

Keywords: DEA, Efficiency, Portfolio Selection, Common weights, MOLP,

Abstract :

The stock evaluation process plays an important role in portfolio selectionbecause it is the prerequisite for investment and directly influences on the stockallocation. This paper presents a methodology based on Data EnvelopmentAnalysis for portfolio selection, decision making units which can be stocks orother financial assets. First, DMUs efficiencies are computed based oninput/output common weights, and then the generation of a portfolio is carried outby a mathematical model. Finally the methodology is illustrated numerically onthe market of Iran stock exchange.

References:

[1] Amiri M., Zandieh M., Vahdani B., Soltani R., & Roshanaei V., An integrated eigenvector-DEA-TOPSIS methodology for portfolio risk evaluation in the FOREX spot market. Expert Systems with Applications , 37, 509-516, 2010.

[2] Aouni B., Ben Abdelaziz  F., & Martel J. M., Decision-maker's preferences modeling in the stochastic goal programming. European Journal of Operational Research , 162, 610-618, 2005.

[3] Ballestero E., Stochastic goal programming:A mean-variance approach. European Journal of Operational Research , 131, 476-581, 2001.

[4] Basso A., & Funari S., A data envelopment analysis approach to measure the mutual fund performance. European Journal of Operational Research , 135, 477-492, 2001.

[5] Ben Abdelaziz  F., Aouni B., & Fayedh  R. E., Multi-objective stochastic programming for portfolio selection. European Journal of Operational Research , 177, 1811-1823, 2007.

[6] Cai  X., Teo  K. L., Yang  X., & Zhou  X. Y., Portfolio optimization under a minimax rule. Management Science , 46, 957-972, 2000.

[7] Charnes A., Cooper  W. W., & Rhodes  E., Measuring the efficiency of decision-making units. European Journal of Operational Research , 3, 429-444, 1978.

[8] Chen  H. H., Stock selection using data envelopment analysis. Industerial Management and Data Systems , 108, 1255-1268, 2008.

[9] Deng  X. T., Li  Z. F., & Wong S. Y., A minimax portfolio selection sterategy with equilibrium. European Jounal of Operational Research , 166, 278-292, 2005.

[10] Dia M., A Portfolio Selection Methodology Based on Data Envelopment Analysis. INFOR:Information Systems and Operational Research , 47, 71-79, 2009.

[11] Edirisinghe N. P., & Zhang X., Generalized DEA model of fundamental analysis and application to portfolio optimization. Journal of Banking and Finance , 31, 3311-3335, 2007.

[12] Edirisinghe N. P., & Zhang X., Portfolio selection under DEA-based relative financial strength indicators:case of US industries. Journal of the Research Society , 59, 842-856, 2008.

[13] Eilat H., Golany B., & Shtub A., Constructing and evaluating balanced portfolios of R&D with interactions:A DEA based methodology. European Journal of Operational Research , 172, 1018-1039, 2006.

[14] Emel A. B., Oral M., Reisman A., & Yolalan R., A credit scoring approach for the commerical banking sector. Socio-Economic Planning Sciences , 37, 103-123, 2003.

[15] Farrell M., The measurement of productive efficiency. Journal of Royal Statistical Society , 120, 253-281, 1957.

[16] Huang X., portfolio selection with a new definition of risk. Europian Journal of Operational Research , 351-357, 2008.

[17] Jahanshahloo G. R., Memariani A., & Hosseinzadeh Lotfi  F., A note on some of DEA models and finding efficiency and complete ranking using common set of weights. Applied Mathematics and Computation , 166, 265-281, 2005.

[18] Kao C., & Hung H. T., Data Envelopment Analysis with common weights:the compromise solution approach. Journal of Operational Research , 56, 1196-1203, 2005.

[19] Karsak E. E., & Ahiska S. S., Partical common weight multi-criteria decision-making approach with an improved discriminating power for technology selection. International Journal of production Research , 43, 1537-1554, 2005.

[20] Ke  J., Qiao J., & Wang G., Emperical Analysis of Portfolio Optimization Based on DEA model. International Seminar on Future Information Technology and Management Engineering, pp. 490-493, 2008.

[21] Konno H., Shirakawa H., & Yamazaki H., A mean-absolute deviation-skewness portfolio optimization model. Annals of Operations Research , 45, 205-220, 1993.

[22] Lozano S., & Gutierrez E., Data envelopment analysis of mutual funds based on second-order stochastic dominanace. European Journal of Operational Research , 189, 230-244, 2008.

[23] Markowitz H., Portfolio selection. Journal of Finance , 7, 77-91, 1952.

[24] Murthi B. S., Choi Y. K., & Desai P., Efficiency of mutual funds and portfolio performance measurement:Anon-parametric approach. European Journal of Operational Research , 98, 408-418, 1997.

[25] Ogryczak W., Multiple criteria linear programming model for portfolio selection. Annals of Operations Research , 97, 143-162, 2000.

[26] Parra M. A., Terol A. B., & Uria M., A fuzzy goal programming approach to portfolio selection. European Journal of Oprational Research , 133, 286-297, 2001.

[27] Roll Y., & Galony B., Alternate methods of treating factor weights in DEA. Omega , 21, 99-109, 1993.

[28] Saaty T. L., Rogers P. C., & Pell R., Portfolio selection through hierarchies. The journal of portfolio management , 6, 16-21, 1980.

[29] Tanaka H., Guo P., & Turksen I. B., Portfolio selection based on fuzzy probabilities and possibility distributions. Fuzzy sets and Systems , 111, 387-397, 2000.

[30] Tiryaki F., & Ahlatcioglu M., Fuzzy stock selection using a new fuzzy ranking and weighting algorithm. Applied Mathematics and Computation , 170, 144-157, 2005.

[31] Williams J. O., Maximizing th probability of achieving invesment goals. Journal of Portfolio Management , 24, 77-81, 1997.

[32] Zhang W. G., & Nie Z. K., On admissible efficient portfolio selection problem. Applied Mathematics and Computation , 159, 357-371, 2004.

[33] Zohrebandian M., Makui A., & Alinezhad A., A compamise solution approach for finding common weigts in DEA:an improvement to Kao and Hung's approach. Journal of Operational Research Society , 61, 604-610, 2010.