Stock selection using a hybrid MCDM approach

The goal of this paper is to resolve these possible divergent results obtained from different multiple criteria decision making (MCDM) methods using a hybrid MCDM approach based on Spearman's rank correlation coefficient. Five MCDM methods are selected: COPRAS, linear assignment, PROMETHEE, SAW...

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Bibliographic Details
Published in:Croatian Operational Research Review 2014-01, Vol.5 (2), p.273-290
Main Authors: Poklepovic, Tea, Babic, Zoran
Format: Article
Language:English
Subjects:
MCDM approach
Spearman’s rank coefficient
stock selection
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Summary:The goal of this paper is to resolve these possible divergent results obtained from different multiple criteria decision making (MCDM) methods using a hybrid MCDM approach based on Spearman's rank correlation coefficient. Five MCDM methods are selected: COPRAS, linear assignment, PROMETHEE, SAW and TOPSIS. The weights for all criteria are obtained by using the AHP method. Data for this study includes information on stock returns and traded volumes from March 2012 to March 2014 for 19 stocks on the Croatian capital market. Rankings using five selected MCDM methods in the stock selection problem yield divergent results. However, after applying the proposed approach the final hybrid rankings are obtained. The results show that the worse stocks to invest in happen to be the same when the industry is taken into consideration or when not. However, when the industry is taken into account, the best stocks to invest in are slightly different, because some industries are more profitable than the others.
ISSN:1848-0225
1848-9931
DOI:10.17535/crorr.2014.0013