Portfolio Optimization of Technology Companies in Malaysia: An Application of Fuzzy TOPSIS-Mean-Absolute Deviation Approach

Lam Weng Siew; Saiful Hafizah Jaaman; Lam Weng Hoe

doi:10.62157/ijietom.v1i1.18

Authors

Lam Weng Siew Centre for Business and Management, Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Bandar Barat, 31900 Kampar, Perak
Saiful Hafizah Jaaman School of Mathematical Sciences, Faculty of Science and Technology, Universiti Kebangsaan Malaysia, 43600 Bangi, Selangor, Malaysia
Lam Weng Hoe Centre for Business and Management, Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Bandar Barat, 31900 Kampar, Perak

DOI:

https://doi.org/10.62157/ijietom.v1i1.18

Keywords:

Fuzzy TOPSIS, Mean-Absolute Deviation, Optimal portfolio, Portfolio risk

Abstract

Selecting and weighting the companies are the main processes in portfolio optimization. It is important to select and determine the companies' weights in constructing the optimal portfolio. In this paper, we propose a two-phase Mean-Absolute Deviation (MAD) model in portfolio optimization of technology companies in Malaysia. In the first phase, the companies’ financial performance is determined and ranked with Fuzzy Technique for Order of Preference by Similarity to the Ideal Solution (TOPSIS). Selection of the good financial performance companies can minimize the influence of firm-specific risk in minimizing the risk of the portfolio at the expected return. In the second phase, the optimal portfolio is generated by weighting the selected companies with MAD model. The results indicate that the investors can minimize the portfolio risk to achieve the expected return with the two-phase MAD model. The significance of this paper is to contribute to the development of portfolio optimization by integrating the Fuzzy TOPSIS and MAD approaches.

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