Application of multi-criteria methods to compose an optimal investment portfolio

Abstract

Many theories take into account historical data on financial instruments when researching the formation of an investment portfolio. To obtain higher returns, a thorough analysis is required, so investors evaluate financial instruments based on additional technical, fundamental or other suitable methods. Multi-criteria valuation methods are applied for the formation of the investment portfolio in the article, that allow to systematize all the factors necessary for both fundamental and technical analysis and to perform a complex valuation. To assess the attractiveness of shares, the financial indicators recommended by scientists are used, the SAW and TOPSIS methods are used to allocate the shares of the investment portfolio. The purpose of this article is to apply multi-criteria valuation methods SAW and TOPSIS for the selection of Baltic stock market companies to create an optimal investment portfolio. The following research methods were used in the article: analysis of scientific literature, systematization, comparison, analysis of financial statements, analysis of statistical data, multi-criteria methods SAW and TOPSIS, graphical representation of data. In this case, the SAW method gave better results by comparing the expected profitability, risk, coefficient of variation and Sharpe ratio.