Dynamic portfolio optimization with the MARCOS approach under uncertainty

Pengrui Yu, Zhipeng Ge, Xiaomin Gong and Xiao Cao

International Review of Financial Analysis, 2024, vol. 96, issue PA

Abstract: This paper introduces a dynamic portfolio selection approach that integrates the robustness of interval type-2 fuzzy sets (IT2FSs) with the flexibility of the MARCOS (Measurement of Alternatives and Ranking according to COmpromise Solution) method, offering a novel framework for asset evaluation amidst uncertainty. The IT2FSs enhance the adaptability of asset criteria representation, while the innovative application of MARCOS within the IT2FS environment refines the asset selection process. The weighted semi-absolute deviation metric is embraced to capture portfolio risk characteristic, which ingeniously harnesses the utility function values derived from the IT2F-MARCOS framework to delineate the anticipated return profile. On this basis, a dynamic bi-objective portfolio allocation model with realistic constraints and dynamic risk preference is formulated to rebalance portfolio periodically. Empirical evidence demonstrates the robustness and effectiveness of this approach compared to benchmark indexes, different allocation strategies, and the TOPSIS-based selection method, offering significant advancements in portfolio optimization for investors navigating uncertain markets. This study endeavors to contribute to the field of portfolio management, providing a thoughtful approach that enhances both theoretical understanding and practical application.

Keywords: Dynamic portfolio selection; MARCOS approach; Uncertainty; Semi-absolute deviation (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pa:s1057521924004976

DOI: 10.1016/j.irfa.2024.103565

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