Profit-based stock selection approach in banking sector using Fuzzy AHP and MOORA method

Abstract

Effective selection process of stocks for portfolio investments is one of the most prominent issues in competitive capital markets. Efficient market hypothesis domanstrates that investors are rational actors in financial system and can access all the data related to investment. In addition to this, the fluctuations in stock prices reflect whole information. As a result of this phenomenon, it is possible to think that rational investors have a tendancy to make clever decisions with the best alternative trading strategies for high returns on investments. A novel and hybrid method in stock selection should be developed for profitable trading strategies. The aim of this study is to analyse the stock selection problem by ranking the performance results of the banks quoted in Borsa Istanbul (BIST) with the adoption of profit-based factors using fuzzy AHP (Analytical Hierarchy Process) and MOORA (Multi-Objective Optimization on the Basis of Ratio Analysis) method in a hybrid model. In this study, it has been illustrated that banks quoted in BIST with higher ratio results on equity and assets are more attractive for investors in stock selection process using profit-based parameters. Morever, expert’s linguistic choices about market values are the most common and meaningful determinants for effective stock selection process.

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