Author(s): Brito, Irene
Date: 2023
Persistent ID: https://hdl.handle.net/1822/84309
Origin: RepositóriUM - Universidade do Minho
Subject(s): Decision analysis; Portfolio optimization; Stock selection; Risk analysis; Expected utility; Entropy and variance model
In the context of investment decision-making, the selection of stocks is important for a successful construction of portfolios. In this paper the expected utility, entropy and variance (EU-EV) model is applied for stock selection, which can be used as preselection model for mean-variance portfolio optimization problems. Based on the EU-EV risk, stocks are ranked and the best ranked stocks with lower risk are selected in order to form subsets of stocks, which are then used to construct portfolios. The EU-EV model is applied to the PSI 20 index, to the Euro Stoxx 50 index and to the Nasdaq 100 index. Subsets of selected stocks are analysed and their portfolios' efficiencies are compared with those of the portfolios obtained from the whole set of stocks using the mean-variance model. The results reveal that the EU-EV model is an adequate stock selection model for building up efficient portfolios with a lower number of stocks.
