A Hybrid Portfolio Selection Model

Abstract

It is generally observed that investors approach asset managers and financial analysts to recommend a customized portfolio based on certain personalized preferences. The article discusses a methodology to build a hybrid personalized multi-criteria model in the Indian stock market context suiting investor preferences. The analytical hierarchy process (AHP) was used to compute the criteria weights and data envelopment analysis (DEA) was adopted to screen the best portfolios which were subsequently ranked by a fuzzy technique for order of preference by similarity to ideal solution (FTOPSIS) and evaluation based on distance from average solution (EDA). The rankings of portfolios were validated for robustness with the actual rankings awarded by Credit Rating Information Services of India Limited (CRISIL) to demonstrate the efficacy of the hybrid model and it was found that Fuzzy TOPSIS and EDA rankings were consistent with the CRISIL rankings proposed by expert investors.