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An algorithm for construction of a portfolio with a fundamental criterion

Pawel Kliber () and Anna Rutkowska-Ziarko ()
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Pawel Kliber: Poznan University of Economics
Anna Rutkowska-Ziarko: University of Warmia and Mazury

No 8911300, Proceedings of Economics and Finance Conferences from International Institute of Social and Economic Sciences

Abstract: The classical models for construction of investment portfolio do not take into account fundamental values of considered companies. In our approach we extend the portfolio choice by adding this dimension to the classical criteria of profitability and risk. It is assumed that an investor selects stock according to their attractiveness, measured by some fundamental values of companies. In this approach portfolios are assessed according to three criteria: their profitability, risk (measured by variance of returns) and fundamental value (measured by some indicators of fundamental value). In this article we consider earnings to price ratio as the measure of the fundamental value of a company. In the paper we consider an algorithm for constructing portfolios with fundamental criterion based on analytical solutions for appropriate optimization problems. In the optimization problem we consider minimizing variance with constrains on expected return and attractiveness of investment, measured with some indicators of fundamental values of companies in a portfolio. We also present empirical examples of calculating effective portfolios of stocks listed on the Warsaw Stock Exchange.

Keywords: portfolio analysis; fundamental value; multicriterial choice; fundamental analysis (search for similar items in EconPapers)
JEL-codes: C61 C63 G11 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2019-07
New Economics Papers: this item is included in nep-cmp and nep-rmg
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Published in Proceedings of the Proceedings of the 11th Economics & Finance Conference, Rome, Jul 2019, pages 102-113

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