Stock portfolio selection using aspiration level-oriented procedure: real case on the RM-SYSTEM Czech stock exchange

Abstract

Many approaches have been designed to solve a stock portfolio selection problem. The aim of this paper is to provide a complex supporting tool for a portfolio selection. So, the problem is seen as a multi-objective one. People tend to settle for a reasonably satisfactory rather than an optimal solution which is provided by the existing methods. That means they substitute the goal of reaching specified aspiration levels for the goal of maximization. Developed Aspiration Level-Oriented procedure (ALOP) is based on searching a linear decision space and current solutions are sought by means of an interactive goal programming approach. Such a procedure has significant advantages for investment decision making. The decision space is searched by changes of aspiration levels using problem-solving approaches. Moreover, the approach can be combined with a weight model of preferences. The power of the developed method is demonstrated on a real investment portfolio making on the RM-SYSTEM Czech stock exchange. A stock portfolio process is performed for two most typical investment strategies-dividend-oriented and capital-oriented investor. The essential criteria (objectives) are determined, as well as their importance (according to the investor’s preferences). After a decision making procedure, their resulting portfolios are analysed and compared.