engleski

Is the expected utility-entropy decision model for stock selection applicable on emerging capital markets?

Capital markets in developing countries, known as emerging capital markets, represent a significant part of the financial markets area and are extremely attractive for investors. Although emerging capital markets provide great opportunities for investors, they are also limited in some ways: low level of liquidity, reduced capitalization, high transaction cost and low transparency. For that reason, investing markets need to be thoroughly analyzed in order of choosing the best strategy and the investment policy. Often, models for investment portfolio management, which give good results in developed capital markets, don't give the same results in the emerging capital markets. In this paper we apply the expected utility-entropy (EU-E) decision model for selecting the set of stocks to be included in the portfolio in Croatian capital market. The mentioned market belongs among emerging capital market. This model combines the decision-maker's subjective preference and the objective uncertainty regarding the states of nature, in which the decision-maker's subjective preference is reflected by the expected utility ; the objective uncertainty is measured using Shannon entropy. This model was proven useful in stock selection for investors in developed capital markets. The efficient portfolio of stock selected by the EU-E decision model have almost the same efficient frontier as the sample of all stocks. It will be tested if this model gives the same results in emerging capital markets.

Emerging capital markets ; expected utility-entropy decision model ; stock selection

nije evidentirano