Portfolio Optimization of Financial Companies with Fuzzy TOPSIS-Mean-Semi Absolute Deviation Model

Lam Weng Siew, Saiful Hafizah Jaaman and Lam Weng Hoe

In portfolio optimization, it is important to select and determine the weights of the companies with optimization model in developing the optimal portfolio. In this paper, we present a linear programming model, namely two-phase Mean-Semi Absolute Deviation (MSAD) model in portfolio optimization of financial companies in Malaysia. The financial performance of the companies is evaluated and ranked with Fuzzy Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) in the first phase. Selection of the companies with good financial performance can minimize the influence of firm-specific risk in minimizing the portfolio risk at the expected return. The optimal portfolio is developed by weighting the selected companies with MSAD model in the second phase. The findings of this study show that the investors are able to minimize the risk and achieve the expected rate of return with the two-phase MSAD model. The significance of this study is to contribute to the development of portfolio optimization by integrating the Fuzzy TOPSIS and MSAD model.

Volume 12 | 04-Special Issue

Pages: 1488-1495

DOI: 10.5373/JARDCS/V12SP4/20201627