Combined DEMATEL technique with a novel MCDM model for exploring portfolio selection based on CAPM

Abstract

This research proposes a novel MCDM model, including DEMATEL, ANP, and VIKOR for exploring portfolio selection based on CAPM. We probe into the influential factors and relative weights of risk-free rate, expected market return, and beta of the security. The purpose of this research is to establish an investment decision model and provides investors with a reference of portfolio selection most suitable for investing effects to achieve the greatest returns. Taking full consideration of the interrelation effects among criteria/variables of the decision model, this paper examined leading semiconductor companies spanning the hottest sectors of integrated circuit (IC) design, wafer foundry, and IC packaging by experts. Empirical findings revealed that risk-free rate was affected by budget deficit, discount rate, and exchange rate; expected market return was affected by country risk, industrial structure, and macroeconomic factors; and beta of the security was affected by firm-specific risk and financial risk. Also, the factors of the CAPM possessed a self-effect relationship according to the DEMATEL technique. In the eight evaluation criteria, macroeconomic criterion was the most important factor affecting investment decisions, followed by exchange rate and firm-specific risk. In portfolio selection, leading companies in the wafer foundry industry outperformed those in IC design and IC packaging, becoming the optimal portfolio of investors during the time that this study was conducted.