Portfolio Selection Using Fuzzy Analytic Hierarchy Process (FAHP)

Investors participate in stock markets for the exclusive purposes of earning highest return and sustaining and enhancing profitability. With this in mind, identifying effective determining factors regarding the selection of both the volume and type of invested securities (portfolio) is a matter of great importance. The selection of an optimal portfolio is dependent upon different factors, including extrinsic and intrinsic criteria that are associated with investors' objectives.The present study first attempts to identify the most effective factors utilized in the selection of a portfolio; then, taking advantage of the Fuzzy Analytical Hierarchy Process (FAHP) as one of the multi-criteria decision-making (MCDM) models, the study proceeds to demonstrate the selection of an adequate stock portfolio. In this paper, in order to investigate the criteria that are most effective in the selection of stocks, a hierarchy of criteria is first presented. Using the Delphi methodology which recognizes the value of experts' opinions, the best available advice from experts is selected and analyzed, and the weight of each identified criterion is measured applying the Analytic Hierarchy Process (AHP) method. The findings of this research suggest that the most significant criteria in the decisions made by investors regarding the selection of stocks are international risk, international economy, competitiveness (as extrinsic factors), and profit, management quality, information transparency, efficiency (as the criterion associated with investors' objectives and as intrinsic factors). Finally, taking such criteria into consideration and using the FAHP method, we proceed to select a stock portfolio include the top seven companies listed in Tehran Stock Exchange during the period of 2007-2011