A multi-dimensional decision framework to support corporate bond investment

This paper constructs a multi-dimensional decision framework to support investment in corporate bonds. The Analytic Hierarchy Process (AHP) is first customized to accommodate six fundamental criteria governing investor behaviour. It is then shown that, after pairwise comparison of criteria and asset...

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Bibliographic Details
Published in:Journal of decision systems 2012-04, Vol.21 (2), p.161-170
Main Authors: Liao, Ziqi, Cheung, Michael Tow
Format: Article
Language:English
Subjects:
Analytic Hierarchy Process
Behavior
Conformity
corporate bond investment
Corporate bonds
Decision making
Economic models
Eigenvalues
Eigenvectors
Hierarchies
Multi-dimensional decision framework
Reflexivity
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Summary:This paper constructs a multi-dimensional decision framework to support investment in corporate bonds. The Analytic Hierarchy Process (AHP) is first customized to accommodate six fundamental criteria governing investor behaviour. It is then shown that, after pairwise comparison of criteria and asset alternatives at appropriate framework levels, a set of weights can be calculated to prioritize the different bonds and allocate wealth over a portfolio which is best in terms of judgmental conformity with the individual's investment goal and investment criteria. Apart from the practical advantages following from ready operationalization and computation, our framework is analytically grounded on the Nobel Prize-winning paradigms of bounded rationality and rational expectations. In particular, an index can be obtained to test for sufficient decision consistency on the part of the bounded-rational individual, and a method is offered to rationally and operationally model changes in investor preferences, perceptions, and expectations under market dynamics and the impact of such changes on the demand for corporate bonds.
ISSN:1246-0125
2116-7052
DOI:10.1080/12460125.2012.680355