Abstract
Investors apply various methods to select stocks and construct an investment portfolio. In the majority of methods, the principle of diversification is relevant. Also, sometimes investors‘ behaviour generate biases related to portfolio formation. Multicriteria decision-making methods can overcome such shortcomings of investors' decision-making; thus, they are widely used for portfolio selection. In the performed research, the portfolio is constructed from the stocks of the Spanish stock market. Stocks are selected based on financial indicators. SAW and TOPSIS multicriteria methods are used to range the suitable stocks. Portfolio weights are proportionate to the obtained multicriteria rank. Characteristics of the final selected stocks are presented graphically. Expected portfolio return and risk are also described when comparing two portfolios. The results of the research prove that multicriteria decision-making methods are suitable for portfolio formation. However, such portfolios should be kept for a long time in order to receive a return.
Highlights
Portfolio diversification and selection of optimal investment portfolio have been topical problems among scientists for many years
19 stocks were left for further analysis and portfolio formation
The research was aimed at constructing an investment portfolio in the Spanish stock market using multicriteria decision-making methods
Summary
Portfolio diversification and selection of optimal investment portfolio have been topical problems among scientists for many years. Since Modern portfolio theory development by H. Markowitz, it has received substantial criticism and many improvement attempts (Rodríguez et al, 2021). Other parameters are increasingly included in portfolio selection: liquidity (García et al, 2020a), sustainability in the form of environmental, social and governance (ESG) scores (García et al, 2019), skewness (Liechty & Saglam, 2017; Pahade & Jha, 2021), and kurtosis (Naqvi et al, 2017). New assets, such as cryptocurrencies (Pho et al, 2021), included in portfolios demand a more comprehensive range of methods applied for portfolio formation. Portfolio decision-making becomes a multicriteria problem to a greater extent
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