Research on the construction of stock portfolios based on multiobjective water cycle algorithm and KMV algorithm

Abstract

The financial situation of listed companies has a great impact on the construction of stock portfolio. However, some traditional portfolio models only consider the fluctuation of stock price and ignore the impact of the financial situation of listed companies on the portfolio, which will affect the effectiveness of the portfolio. To fill the gap, a new portfolio model based on the KMV model and a multiobjective water cycle algorithm is proposed to further improve the framework of portfolio construction. Firstly, the KMV model is used to evaluate the financial situation of listed companies, and then the optimization algorithm directly uses both the results of KMV and the fluctuation of stock price to build a more reasonable portfolio. To evaluate the validity of the model, the data of 100 A-share listed companies collected from China were used in two experiments. The results of the experiments show that the model can determine the stock portfolio according to the internal financial information and stock history information of listed companies, which not only can improve the effect and stability of the investment portfolio, but also can play a guiding role in the performance evaluation of listed companies.