engleski

Grey Incidence Analysis as a Tool in Portfolio Selection

Nowadays, many quantitative tools exist in portfolio and risk management in order to evaluate a set of investment opportunities, track their performance over time and in the end to evaluate the performance of the entire portfolio. A relatively unknown approach is the Grey Relation Analysis (GRA) approach, developed in the 1980s in order to help when making decisions within modelling of uncertain systems. However, it is still not sufficiently explored in the portfolio and risk management. Thus, this chapter explores the possibilities of using the GRA approach of ranking the stocks in the process of portfolio selection. Two contributions are expected in the chapter. Firstly, a concise and critical overview of the previous applications within the field of portfolio management is provided for the first time in the literature. The second contribution focused on the empirical application of the GRA approach when ranking the stocks based upon the investor’s utility function theory. This research used the first four moments of return distributions when ranking the stocks by using the GRA approach in order to construct portfolios based upon the results. The results indicate that higher moments of return distributions should be taken into consideration in portfolio selection.

grey analysis ; portfolio selection ; grey data ; risk analysis

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