Applicability of TOPSIS model and Markowitz model

Nur Aqilah Mohammed Fauzi, Munira Ismail, Saiful Hafizah Jaaman, Siti Noor Diana Mohd Kamaruddin

Research output: Contribution to journalConference article

Abstract

The proper tool to select a company with the best financial performance is one of paramount importance before generating an optimal portfolio. The right company selection can reduce the influence of firm-specific risk which in turn can maximize the expected return on portfolio and minimize the portfolio risk. There are many literature which focus on generating portfolios using optimal Markowitz Model but did not focus much on effective methods on how to select stocks before forming the portfolio. In this paper, a method is introduced a method to select stocks before the formation of portfolio based on company's financial performance through multi-criteria decision making model using Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) model. The objective of this study is to evaluate, compare and rank the company's overall performance by sector using the TOPSIS model based on financial ratio data. Companies with the highest ranking by sector are then selected to form a portfolio. Next, the optimal portfolio is generated using the Markowitz model. When a company's financial performance results were evaluated using the TOPSIS model, five companies are selected according to sector to form a portfolio. The findings show that the combination of TOPSIS and Markowitz models can help investors to make portfolio investment decisions more efficiently as compared to randomly selected stocks.

Original languageEnglish
Article number012032
JournalJournal of Physics: Conference Series
Volume1212
Issue number1
DOIs
Publication statusPublished - 10 May 2019
Event14th International Symposium on Geometric Function Theory and Applications, GFTA 2018 - Selangor, Malaysia
Duration: 3 Dec 20185 Dec 2018

Fingerprint

sectors
ranking
decision making

ASJC Scopus subject areas

  • Physics and Astronomy(all)

Cite this

Aqilah Mohammed Fauzi, N., Ismail, M., Hafizah Jaaman, S., & Noor Diana Mohd Kamaruddin, S. (2019). Applicability of TOPSIS model and Markowitz model. Journal of Physics: Conference Series, 1212(1), [012032]. https://doi.org/10.1088/1742-6596/1212/1/012032

Applicability of TOPSIS model and Markowitz model. / Aqilah Mohammed Fauzi, Nur; Ismail, Munira; Hafizah Jaaman, Saiful; Noor Diana Mohd Kamaruddin, Siti.

In: Journal of Physics: Conference Series, Vol. 1212, No. 1, 012032, 10.05.2019.

Research output: Contribution to journalConference article

Aqilah Mohammed Fauzi, N, Ismail, M, Hafizah Jaaman, S & Noor Diana Mohd Kamaruddin, S 2019, 'Applicability of TOPSIS model and Markowitz model', Journal of Physics: Conference Series, vol. 1212, no. 1, 012032. https://doi.org/10.1088/1742-6596/1212/1/012032
Aqilah Mohammed Fauzi N, Ismail M, Hafizah Jaaman S, Noor Diana Mohd Kamaruddin S. Applicability of TOPSIS model and Markowitz model. Journal of Physics: Conference Series. 2019 May 10;1212(1). 012032. https://doi.org/10.1088/1742-6596/1212/1/012032
Aqilah Mohammed Fauzi, Nur ; Ismail, Munira ; Hafizah Jaaman, Saiful ; Noor Diana Mohd Kamaruddin, Siti. / Applicability of TOPSIS model and Markowitz model. In: Journal of Physics: Conference Series. 2019 ; Vol. 1212, No. 1.
@article{c425d30935824643bd374c458682e02a,
title = "Applicability of TOPSIS model and Markowitz model",
abstract = "The proper tool to select a company with the best financial performance is one of paramount importance before generating an optimal portfolio. The right company selection can reduce the influence of firm-specific risk which in turn can maximize the expected return on portfolio and minimize the portfolio risk. There are many literature which focus on generating portfolios using optimal Markowitz Model but did not focus much on effective methods on how to select stocks before forming the portfolio. In this paper, a method is introduced a method to select stocks before the formation of portfolio based on company's financial performance through multi-criteria decision making model using Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) model. The objective of this study is to evaluate, compare and rank the company's overall performance by sector using the TOPSIS model based on financial ratio data. Companies with the highest ranking by sector are then selected to form a portfolio. Next, the optimal portfolio is generated using the Markowitz model. When a company's financial performance results were evaluated using the TOPSIS model, five companies are selected according to sector to form a portfolio. The findings show that the combination of TOPSIS and Markowitz models can help investors to make portfolio investment decisions more efficiently as compared to randomly selected stocks.",
author = "{Aqilah Mohammed Fauzi}, Nur and Munira Ismail and {Hafizah Jaaman}, Saiful and {Noor Diana Mohd Kamaruddin}, Siti",
year = "2019",
month = "5",
day = "10",
doi = "10.1088/1742-6596/1212/1/012032",
language = "English",
volume = "1212",
journal = "Journal of Physics: Conference Series",
issn = "1742-6588",
publisher = "IOP Publishing Ltd.",
number = "1",

}

TY - JOUR

T1 - Applicability of TOPSIS model and Markowitz model

AU - Aqilah Mohammed Fauzi, Nur

AU - Ismail, Munira

AU - Hafizah Jaaman, Saiful

AU - Noor Diana Mohd Kamaruddin, Siti

PY - 2019/5/10

Y1 - 2019/5/10

N2 - The proper tool to select a company with the best financial performance is one of paramount importance before generating an optimal portfolio. The right company selection can reduce the influence of firm-specific risk which in turn can maximize the expected return on portfolio and minimize the portfolio risk. There are many literature which focus on generating portfolios using optimal Markowitz Model but did not focus much on effective methods on how to select stocks before forming the portfolio. In this paper, a method is introduced a method to select stocks before the formation of portfolio based on company's financial performance through multi-criteria decision making model using Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) model. The objective of this study is to evaluate, compare and rank the company's overall performance by sector using the TOPSIS model based on financial ratio data. Companies with the highest ranking by sector are then selected to form a portfolio. Next, the optimal portfolio is generated using the Markowitz model. When a company's financial performance results were evaluated using the TOPSIS model, five companies are selected according to sector to form a portfolio. The findings show that the combination of TOPSIS and Markowitz models can help investors to make portfolio investment decisions more efficiently as compared to randomly selected stocks.

AB - The proper tool to select a company with the best financial performance is one of paramount importance before generating an optimal portfolio. The right company selection can reduce the influence of firm-specific risk which in turn can maximize the expected return on portfolio and minimize the portfolio risk. There are many literature which focus on generating portfolios using optimal Markowitz Model but did not focus much on effective methods on how to select stocks before forming the portfolio. In this paper, a method is introduced a method to select stocks before the formation of portfolio based on company's financial performance through multi-criteria decision making model using Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) model. The objective of this study is to evaluate, compare and rank the company's overall performance by sector using the TOPSIS model based on financial ratio data. Companies with the highest ranking by sector are then selected to form a portfolio. Next, the optimal portfolio is generated using the Markowitz model. When a company's financial performance results were evaluated using the TOPSIS model, five companies are selected according to sector to form a portfolio. The findings show that the combination of TOPSIS and Markowitz models can help investors to make portfolio investment decisions more efficiently as compared to randomly selected stocks.

UR - http://www.scopus.com/inward/record.url?scp=85066341094&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85066341094&partnerID=8YFLogxK

U2 - 10.1088/1742-6596/1212/1/012032

DO - 10.1088/1742-6596/1212/1/012032

M3 - Conference article

AN - SCOPUS:85066341094

VL - 1212

JO - Journal of Physics: Conference Series

JF - Journal of Physics: Conference Series

SN - 1742-6588

IS - 1

M1 - 012032

ER -