A CREDIBILISTIC MEAN-SEMIVARIANCE-PER PORTFOLIO SELECTION MODEL FOR LATIN AMERICA

Fernando García,Javier Oliver,Rima Tamošiūnienė,Jairo González-Bueno

doi:10.3846/jbem.2019.8317

Abstract

Many real-world problems in the financial sector have to consider different objectives which are conflicting, for example portfolio selection. Markowitz proposed an approach to determine the optimal composition of a portfolio analysing the trade-off between return and risk. Nevertheless, this approach has been criticized for unrealistic assumptions and several changes have been proposed to incorporate investors’ constraints and more realistic risk measures. In this line of research, our proposal extends the mean-semivariance portfolio selection model to a multiobjective credibilistic model that besides risk and return, also considers the price-to-earnings ratio to measure portfolio performance. Uncertain future returns and PER ratio of each asset are approximated using L-R power fuzzy numbers. Furthermore, we consider budget, bound and cardinality constraints. To solve the constrained portfolio optimization problem, we use the algorithm NSGA-II. We assess the proposed approach generating a portfolio with shares included in the Latin American Integrated Market. Results show that this new approach is a good alternative to solve the portfolio selection problem when multiple objectives are considered.

Highlights

Stock exchange investors have a variety of strategies available to allocate their wealth
This paper extends the literature on portfolio selection model by assuming that the return on each asset is an L-R power fuzzy variable whose moments are assessed employing their credibility distributions
This paper considers that the P/E ratio of the i-th asset is expressed by an L-R power fuzzy number

Summary

Introduction

Stock exchange investors have a variety of strategies available to allocate their wealth. F. García et al A credibilistic mean-semivariance-PER portfolio selection model for Latin America tors widely use fundamental analysis (De Oliveira, Nobre, & Zárate, 2013; Shen, Yan, & Tzeng, 2014) or passive investment strategies (García, Guijarro, & Moya, 2013; García, Guijarro, & Oliver, 2018). García et al A credibilistic mean-semivariance-PER portfolio selection model for Latin America tors widely use fundamental analysis (De Oliveira, Nobre, & Zárate, 2013; Shen, Yan, & Tzeng, 2014) or passive investment strategies (García, Guijarro, & Moya, 2013; García, Guijarro, & Oliver, 2018) All these strategies concentrate on the expected return of the assets, which are analyzed individually, not as a portfolio. When a portfolio is built, it is necessary to take into account the return correlation of the assets in the portfolio. Markowitz (1952) was the first who changed the focus of investment analysis away from individual assets selection towards the concept of diversification and shed light on the portfolio selection problem

Methods

Results

Conclusion