Stock screening with use of factor analysis and fuzzy multiple criteria decision making

Malek Tahoori, Safar Fazli and Reza Kiani Mavi

International Journal of Procurement Management, 2011, vol. 4, issue 1, 87-107

Abstract: Screening is a process in which a large set of alternatives is reduced to a smaller set that most likely contains the best choice. In this paper, a new method for stock screening is proposed. Two general criteria are used. The first of them is based on the financial indices and may be treated as the criterion of firm's 'health'. The second one is the firm's market success criterion that is based on the stock prices. Previous research has shown that there are many factors that are important for financial analysis. Factor analysis is a data reduction technique, which can be applied in financial analysis. This technique thus applied to determine the factors that are important for stock screening. The method rests on the selection of the stocks with a great correlation of the firm's financial performance and its market success. As an example, the values of financial ratios and prices of 24 firms from the pharmaceutical industry of Tehran stock exchange were used. It is shown that the proposed method makes it possible to select a small group of 'good' stocks.

Keywords: stock screening; multiple criteria decision making; multicriteria decision making; fuzzy MCDM; factor analysis; analytical hierarchy process; AHP; financial indices; firm health; market success; stock prices; financial analysis; data reduction; stock selection; financial performance; financial ratios; pharmaceutical industry; Tehran; stock exchanges; Iran; procurement management. (search for similar items in EconPapers)
Date: 2011
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