Comparative analysis of stock selection using a hybrid MCDM approach and modern portfolio theory

Vuković Marija (), Pivac Snježana () and Babić Zoran ()
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Vuković Marija: University of Split, Faculty of Economics, Business and Tourism, Croatia
Pivac Snježana: University of Split, Faculty of Economics, Business and Tourism, Croatia
Babić Zoran: University of Split, Faculty of Economics, Business and Tourism, Croatia

Croatian Review of Economic, Business and Social Statistics, 2020, vol. 6, issue 2, 58-68

Abstract: The problem of selecting an optimal set of investment stocks is of a huge interest for both individual and institutional investors. This paper compares the hybrid multiple criteria decision making (MCDM) approach to selecting the best stock to invest in, with the stock selection using modern portfolio theory (MPT). When selecting stocks, it is very important to thoroughly analyse stocks, according to multiple criteria, including their equity market indicators, as well as financial indicators. The objective of the research is to compare the stock selection using a hybrid MCDM approach and MPT, which includes only the equity market indicators. The analysed sample includes 18 stocks, which are CROBEX components on the Croatian capital market from January 2017 to January 2019. The rankings of stocks were calculated using five MCDM methods. These were then used to obtain the final hybrid stock ranking, which was compared to the MPT stock selection. The results show that there is a significant difference in the stock rankings. However, the stocks which have not entered any portfolio in MPT selection were ranked as lowest according to the hybrid MCDM approach, which confirms that those stocks are the worst to invest in. The research can serve as a guidance for investors to use all available stock information in their decision making process of investment.

Keywords: MCDM approach; modern portfolio theory; stock selection (search for similar items in EconPapers)
JEL-codes: C44 C52 G11 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:crebss:v:6:y:2020:i:2:p:58-68:n:4

DOI: 10.2478/crebss-2020-0011

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