Abstract
This paper presents a methodology for making decisions in the stock market using the AHP-TOPSIS multi-criteria technique. The problem is related to the stock market’s investment process considering the criteria of liquidity, risk, and profitability. The proposed methodology includes integrating economic and financial theories of investment in equity portfolios with the AHP-TOPSIS multi-criteria technique, which allows for evaluating a finite number of alternatives hierarchically under qualitative and quantitative criteria. The methodology has been tested in a real case of selecting a portfolio of high and medium marketability stocks for the Colombian market from April 2012 to April 2017. The computational results show the importance and efficiency of successfully integrating traditional equity portfolio investment criteria and multi-criteria methodologies to find an appropriate balance between profitability and risk in the investment decision-making process in shares in the Colombian stock market. The proposed methodology could be applied to other emerging markets, similar to Colombia.
Highlights
Investing in the financial market has become an increasingly routine activity by individuals who find an opportunity to increase their capital in this market (Escobar2015)
The incursion into these financial activities occurs through the purchase and sale of financial instruments, which generate value in specific market situations—situations that are typically inherent to risk and market volatilities because, in general, assets and financial instruments are frequently affected by a myriad of variables that can very quickly lead the investor from a state of economic prosperity to total misfortune (Escobar 2015)
To address the gap in published works, this paper proposes a methodology for making decisions in the stock market using the analytic hierarchy process (AHP)-TOPSIS multi-criteria technique, which allows for hierarchically evaluating a finite number of alternatives under qualitative and quantitative criteria
Summary
The incursion into these financial activities occurs through the purchase and sale of financial instruments, which generate value in specific market situations—situations that are typically inherent to risk and market volatilities because, in general, assets and financial instruments are frequently affected by a myriad of variables that can very quickly lead the investor from a state of economic prosperity to total misfortune (Escobar 2015). In this sense, investment decisions require intricate knowledge of market conditions The author provides a vast list of studies highlighting the use of these decision methods on financial and corporate problems and, in particular, on portfolio management problems
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