Int. J. Operational Research, Vol. 22, No.

4, 2015 423

Stock portfolio selection using a hybrid fuzzy

approach: a case study in Tehran Stock Exchange

J. Rezaeian* and F. Akbari

Department of Industrial Engineering,
Mazandaran University of Science and Technology,
P.O. Box 734, Babol, Iran
Email: j_rezaeian@ustmb.ac.ir
Email: fh.akbari@gmail.com
*Corresponding author

Abstract: Portfolio selection for effective making decisions on investment is a

critical decision and plays considerable role for obtaining the objectives of
investing for any stockholders. The fundamental issue for decision making in a
stock market is selection of the right stock at the right time. Selecting the
appropriate alternatives for investing will be followed by many positive results
such as favourable effects on profitability. In order to select superior stocks for
investment, a finite number of alternatives have to be ranked considering
several and sometimes conflicting criteria that often are ambiguous and have
uncertainty conditions. This paper proposes a novel combined approach which
utilises group decision making process and ranking the important factors with
fuzzy decision making trial and evaluation laboratory (fuzzy DEMATEL) and
fuzzy analytic network process (fuzzy ANP). The proposed model is
implemented in Tehran Stock Exchange and the results show the efficiency of
the model.

Keywords: multiple criteria decision making; fuzzy MCDM; portfolio

selection; decision making trial and evaluation laboratory; fuzzy DEMATEL;
analytical network process; fuzzy ANP; Tehran Stock Exchange.

Reference to this paper should be made as follows: Rezaeian, J. and Akbari, F.

(2015) ‘Stock portfolio selection using a hybrid fuzzy approach: a case study in
Tehran Stock Exchange’, Int. J. Operational Research, Vol. 22, No. 4,
pp.423–453.

Biographical notes: J. Rezaeian is a member of Faculty in the Department of

Industrial Engineering at Mazandaran University of Science and Technology.
His research interests are applications of project management, sequencing and
scheduling, facility design, fuzzy logic and meta-heuristics.

F. Akbari is a PhD student at Islamic Azad University of Tehran (Sciences and

Research Branch). Her research interests are applications of decision making
analysis, performance evaluation, and facility location problems.

Copyright © 2015 Inderscience Enterprises Ltd.

424 J. Rezaeian and F. Akbari

1 Introduction

The portfolio selection problem is a collection of investments that determines which

assets in what proportion will satisfies the investors’ wish for achieving long-term and
invariant economic growth and appropriate allocation of resources. Investors require
suitable fields of investment and existence of instruments or techniques at capital market
(Panahian, 2011). The main purpose of portfolio selection is finding methods for
allocating capital to a large number of financial securities and making high profitability
and satisfaction for investors (Calafiore, 2008; Chen and Huang, 2009).
Portfolio selection as one of the most considerable issues in modern finance was first
proposed by Markowitz (1952). Based on this model, Sharpe (1964) developed a capital
asset pricing model (CAPM) under performance conditions with multiple attribute utility
theory. Ross (1976) also developed arbitrage pricing theory, where the stock return as a
common component is used through a number of factors. Huang (2008) considered three
different definitions of risk (variance, semi-variance and probability) and constructed a
hybrid intelligent algorithm for solving selection portfolio problem.
Maximising return with minimum risk should be a presage of every successful
investor and it is based on conventional theory of finance. Moreover, behavioural aspects,
like the investor’s attitude to liquidity and suitability, are not taken into consideration.
Steuer et al. (2007) developed a multiple criteria portfolio selection and examined the
sensitivity of the non-dominated border to different factors.
Markowitz (1952) showed that the process of portfolio analysis is generally divided
into three stages as follows:
1 Information concerning stocks.
2 The criteria for better and worse portfolio that is explanatory of the objective of
analysis.
3 The computing procedure (as for, data and criteria).
Most researchers have proposed using multiple criteria decision making (MCDM)
techniques both crisp and fuzzy environment and also this technique has become a
popular and common tool in literature. Steuer et al. (2007) developed a multiple criteria
portfolio selection formulation and examined the sensitivity of the non-dominated
frontier to various factors.
Jiang et al. (2011) considered the pair-wise comparison approach of analytic
hierarchy process (AHP) and employed this method for remanufacturing technology
portfolio selection.
Charouz and Ramik (2010) applied multi criteria decision making (MCDM)
techniques in portfolio selection and compared consequences with results that obtained
by mean-variance optimisation. Xidonas et al. (2009) examined application of multi
attribute decision making methodology for selection of stock portfolios. Ehrgott et al.
(2004) considered five factors for evaluation and used MCDM approach to solve the
portfolio selection problem. Jerry Ho et al. (2011) proposed a novel MCDM model for
exploring portfolio selection based on CAPM. Financial markets involve uncertainty
conditions and for this reason means of fuzzy quantities and fuzzy constraints satisfy this
condition.
Conventional portfolio optimisation models have an assumption that the future
condition of stock market can be accurately predicted by historical data. However, no
 Stock portfolio selection using a hybrid fuzzy approach 425

matter how accurate the past data is, this presumes will not exist in the financial market
due to the high volatility of market environment. For this reason, fuzzy set theory is
invited into the measurement of performance.
In the area of optimisation problems under uncertainty, fuzzy mathematical
programming which incorporates uncertainty by fuzzy concepts has been widely used
since the pioneering work by Zadeh (1965). Bilbao-Terol et al. (2006) considered fuzzy
compromise programming for portfolio selection. Chen and Huang (2009) presented
portfolio selection model with fuzzy returns and risks.
Fei (2007) concentrated on the optimal consumption and portfolio selection in fuzzy
environment. Li and Xu (2009) constructed a new portfolio selection model which
considering the returns of each security to be fuzzy random variable.
Qin et al. (2009) presented mathematical models and designed a hybrid intelligent
algorithm for portfolio selection with minimising the variance of the fuzzy investment
return. Tiryaki and Ahlatcioglu (2009) applied fuzzy AHP in portfolio selection to
provide both ranking and weighting information for investors.
Leung et al. (2003) showed many traditional MCDM techniques in crisp or fuzzy
environment are based on independence assumptions, but each individual criterion is not
always completely independent. The analytical network process (ANP) method proposed
by Saaty (1996) for considering interactions between elements. In this method, the
treatments of inner dependences are not complete and perfect. So, decision making trial
and evaluation laboratory (DEMATEL) method which was proposed by Fontela and
Gabus (1976) can be used to consider the inner dependences among criteria. Deng (1999)
discussed that MCDM methods are often criticised for their inability to adequately deal
with the uncertainty and imprecision associated with the mapping of the decision makers’
perception to crisp numbers. This method is based on digraphs, which can separate
involved factors into cause group and effect group and these separations are useful in
critical situation.
In the literature, there are some realised studies that combine ANP and DEMATEL
methodologies in another fields and discuses about advantages of these combinations.
Chen and Chen (2010) presented an innovation support system for Taiwanese higher
education using a novel conjunctive MCDM approach based on DEMATEL, fuzzy ANP.
Lin et al. (2010) evaluated vehicle telemetric system by using DEMATEL, ANP, and
TOPSIS techniques with dependence and feedback. These kinds of combined works
illustrated better performance for decision makers.
To our knowledge, for portfolio selection there no previous work investigated such a
problem by an integrated method with DEMATEL, ANP, in fuzzy environment.
As a result, the purpose of this study is establishing an investment decision model to
provide investors with novel hybrid MCDM model consisting of combined fuzzy
DEMATEL with fuzzy ANP. Fuzzy ANP is used to compute final ranking of the
portfolio alternatives. Fuzzy DEMATEL is applied to deal with inner dependencies
between criteria and then to build a network relation map between criteria for portfolio
evaluation. An empirical study is presented to illustrate the application of the proposed
method. Gold metal, industrial oils and bank are taken as evaluation objectives from
Tehran Stock Exchange. The rest of this paper is organised as follows: in Section 2 the
effective factors are identified. In Section 3, the description and application of the novel
MCDM are included. Fuzzy set theory, CFCS defuzzification method, fuzzy ANP and
fuzzy DEMATEL are described in Section 4. Section 5 shows an empirical study of
426 J. Rezaeian and F. Akbari

selecting the optimal portfolio by using the proposed evaluation model, and Section 6
includes outputs and the results are discussed. The conclusions and remarks are provided
in the final section.

2 Criteria identification

Portfolio selection problem can be considered as a multiple criteria decision making

problem that each portfolio consists of many attributes. Authors often take into account
risk and return as two essential criteria for evaluation and selection of optimal portfolio.
The investigations have evidenced that the existence of other variables are effective on
most financial markets, e.g., (Parra et al., 2001; Chang et al., 2009). Table 1 summarises
the criteria which are considered by many of researchers.
In this study, 12 most popular criteria are mentioned which are selected according to
the experts’ idea of Tehran Stock Exchange and, definitions of these criteria are from
business-dictionary (http://www.businessdictionary.com). Table 2 shows criteria and
definition.
Table 1 A summarisation of considered criteria by recent studies

Authors Year Method Criteria

Abdelaziz et al. 1999 MODM technique Return, risk and liquidity
(compromise planning)
Parra et al. 2001 MODM technique Return, risk and liquidity
(goal programming)
Chang et al. 2009 Fuzzy AHP liquidity, safety of principle, profit
stability, capital growth, tax advantage,
inflation amount
Tiryaki and 2009 Fuzzy AHP Economic, political, technological,
Ahlatcioglu profitability, size, profit, security,
excitement, control
Chen and 2009 EIECTRE, TOPSIS Profitability, asset utilisation, liquidity,
Huang leverage, valuation, growth
Amiri et al. 2010 DEA-TOPSIS Technology, trading psychology,
trading system, capital management,
technical analysis, trading tools, broker
Tahoori et al. 2011 Multiple criteria decision Liquidity, leverage ratio market value,
making activity ratios, profitability
Jerry Ho et al. 2011 DEMATEL-ANP Risk-free rate, expected market return,
beta of the security
Gupta et al. 2011 FMOLP-AHP Risk, return liquidity
dividend, suitability
Janani et al. 2012 TOPSIS method Return, earnings per share,
beta, turnover rates, trade times,
return on assets (ROA),
return on equity, current ratio
 Stock portfolio selection using a hybrid fuzzy approach 427

Table 2 Definitions of evaluation criteria for selection portfolio

Evaluation criteria Descriptions Proposed study

C1: Risk The probability that an actual return on an Roy (1952), Parra et al.
investment will be lower than the expected (2001), Abdelaziz et al.
return. (1999), Gupta et al.
(2011), Janani et al.
(2012)
C2: Stock return Yield generated by an investment, expressed Parra et al. (2001),
usually as a percentage of the amount Abdelaziz et al. (1999),
invested. Gupta et al. (2011),
Janani et al. (2012)
C3: Liquidity The ability to quickly convert an investment Parra et al. (2001),
portfolio to cash with little or no loss in value. Abdelaziz et al. (1999),
Gupta et al. (2011),
Tahoori et al. (2011),
Chen and Huang
(2009), Chang et al.
(2009).
C4: Dividend A share of the after-tax profit of a company, Gupta et al. (2011)
distributed to its shareholders according to the
number and class of shares held by them.
C5: Suitability Self-imposed guidelines for fair investment Gupta et al. (2011)
advisory practices. Advisors, brokers, and
dealers are expected to ensure that the client
has the means (high enough net worth with
adequate liquid assets) to assume the
particular financial risk, and that he or she
would not be ruined or grievously hurt if the
investment sum is lost.
C6: Intrinsic value Net value of the total assets of a firm divided Janani et al. (2012)
per share by the number of issued (outstanding)
common stock or ordinary shares of the firm.
It is a theoretical indicator of the portion of
assets attributable to each share in case the
firm is liquidated.
C7: Security The instrument of measurement of systematic Jerry Ho et al. (2011),
risk Tiryaki and Ahlatcioglu
(2009)
C8: Financial ratios A financial analysis comparison in which Janani et al. (2012),
certain financial statement items are divided Tahoori et al. (2011)
by one another to reveal their logical
interrelationships.
C9: Free float Total number of outstanding stock (shares) of New criteria are added
a firm available on the stock-market. A low- by experts
level of float indicates high volatility because
every big purchase or sale of the stock will
have a dramatic effect its market price.
C10: Turnover ratio Number of shares traded as a fraction of the Janani et al. (2012)
number of shares outstanding during a given
period of time
428 J. Rezaeian and F. Akbari

Table 2 Definitions of evaluation criteria for selection portfolio (continued)

Evaluation criteria Descriptions Proposed study

C11: Type of Investor select industry for investing which its New criteria are added
industry return is more than other industries. by experts
C12: Market trends When the trading market responds to the ups New criteria are added
and downs of the prices associated with by experts
investments and securities.

3 The proposed methodology

In this section, a methodology based on combined fuzzy DEMATEL and fuzzy ANP for
portfolio selection problem is proposed. The overall schema of proposed algorithm is
depicted in Figure 1.
This methodology consists of following steps:
Step 1 Determining the goal of the problem.
Step 2 Creating a list of superior stocks for portfolio selection.
Step 3 Identification of evaluation criteria.
In this step, the criteria that are more important than other criteria in portfolio
selection are selected by interviewing experts and managers.
Step 4 Constructing relation network structure.
Step 5 Collecting data.
In this step, the pair-wise comparisons matrices will be obtained by using
experts’ judgements. These matrices are the pair-wise comparisons of criteria
related to the goal, and the pair-wise comparisons of alternatives related to each
criterion separately.
Step 6 Collecting data related to criteria based on their inner relation.
In this step, by using questionnaires pair-wise comparisons are separately
constructed based on linguistic variables.
Step 7 Converting the data of Step 5 to fuzzy numbers based on the scales in Table 3.
Step 8 Defuzzyfication of matrices which are obtained from Step 7 by CFCS method in
equations (2) to (9).
Step 9 Calculating weights by using fuzzy ANP.
In this step, first matrices of Step 8 are aggregated by equation (10) and then
applying fuzzy ANP for calculating crisp integrated values and final weights for
12 main criteria with respect to goal and crisp integrated values and final
weights for three alternatives with respect to each criterion.
Step 10 Converting data from Step 6 to fuzzy numbers based on scales are mentioned in
Table 4.
 Stock portfolio selection using a hybrid fuzzy approach 429

Figure 1 Diagram of proposed methodology

Create a list of superior stock for portfolio selection

Literature Identify the decision criteria for portfolio selection Experts’

review opinion

Goal

Relation network
C1 ……

structure
C2 Cn

Data
collection
A1 ..… A2 An

CFCS method

Data
Collection
Experts’
opinion Experts’
opinion
Applying fuzzy DEMATEL method

Finding the direct-

Applying fuzzy ANP for alternatives

relation matrix Construct linguistic
matrix with respect
alternatives
Constructing the unweighted
Normalising the supermatrixs
direct-relation
CFCS method
CFCS defuzziattion
Calculating the
total-relation matrix
Weighting the unweighted
Calculating final
supermatrix
Calculating two weights and crisp
indexes D+R and D-R integrated values

Calculating limit matrix

Draw casual and effect diagram

Normalisation

C1
...
Cn Computing lower and
D+R

... Ranking criteria and

specifying casual group and upper normalised
Ranking alternatives
effect group for investing
D-R
Computing total
normalised

Computing
crisp value

Step 11 Defuzzyfication of matrices of Step 10 by CFCS method.

Step 12 Aggregating matrices of Step 11 by geometric mean method.
Step 13 Calculating weights of inner relation between criteria by applying fuzzy
DEMATEL.
Step 14 Combining fuzzy DEMATEL and ANP methods.
In supermatrix inner dependency between criteria can be obtained from fuzzy
DEMATEL method and other weights are calculated from fuzzy ANP. Since
there is inner dependency among clusters in a network, the sum of columns in
the supermatrix is usually more than one and called unweighted supermatrix, so
430 J. Rezaeian and F. Akbari

after calculating the total relation matrix T in fuzzy DEMATEL and before
inserting into unweighted supermatrix, the total relation matrix T should be
normalised (Wu and Hung, 2008).
Step 15 Ranking alternatives for best investing.
In this step, the final weights of alternatives will be calculated and the best
alternatives will be selected by using ANP technique and by calculating
weighted and limited supermatrix. To achieve weighted supermatrix at first the
columns of unweighted supermatrix must be normalised, it means, the sum of
each column of the unweighted matrix should be equal to 1. To obtain the
limited supermatrix, weighted matrix is raised to the power of 2p + 1; where p is
an arbitrarily large number until it reaches the convergence. Finally, having the
limited supermatrix, the global priorities of all the elements can be obtained. The
calculations of the supermatrix can be easily solved by using the professional
software named ‘super decisions’, and then the overall priorities were obtained
from the limit supermatrix.

4 Evaluation methods

4.1 Fuzzy set theory

Fuzzy set theory was introduced first by Zadeh (1965) as a mathematical way to represent
and handle vagueness in decision-making.

Definition 1: A fuzzy set A is a subset of a universe of discourse X, which is a set of

pairs and is characterised by the membership function μ A ( x). The function value of
μ A ( x) for the fuzzy set A is called the membership value of x in A , which represents
the degree of truth that x is an element of the fuzzy set A . It is assumed that
μ  ( x) ∈ [0, 1], where μ  ( x) = 1 reveals that x completely belongs to A , while
A A

μ A ( x) = 0 indicates that x does not belong to the fuzzy set A . where μ A ( x) is the
membership function and X = {x} represents a collection of elements x.

Definition 2: A fuzzy set A of the universe of discourse X is convex if

μ A ( λX 1 + (1 − λ) X 2 ) ≥ min ( μ A ( X 1 ) , μ A ( X 2 ) ) , ∀x ∈ [ X 1 , X 2 ] , λ ∈ [0, 1].

Definition 3: A fuzzy set A of the universe of discourse X is normal if max μ A ( X ) = 1.

Definition 4: A triangular fuzzy number N can be defined as a triplet (l, m, r) and the
membership functional N is defined as equation (1).

⎧ 0, x < l,
⎪ x−l
f ( x) = ⎪ , l ≤ x ≤ 0, (1)
⎨m−l
⎪r−x
⎪ , l ≤ x ≤ 0.
⎩r − m
 Stock portfolio selection using a hybrid fuzzy approach 431

4.2 CFCS defuzzification method

Defuzzification is selection of crisp element based on the output of fuzzy set and
converting fuzzy numbers into crisp scores. Various methods of defuzzification exist, and
the method is used in this study is CFCS defuzzification method. This method was
introduced by Opricovic and Tzeng (2003).
Aijk = ( lijk , mijk , rijk ) , indicates the fuzzy assessment between the criterion i and
criterion j of the kth evaluator.
The steps of CSCF method are described as follow:
Step 1 Normalisation:
Δ max
min = max rij − min lij ,
k k
(2)

lijk − min lijk

xlijk = , (3)
Δ max
min

mijk − min lijk

xmijk = , (4)
Δ max
min

rijk − min lijk

xrijk = . (5)
Δ max
min

Step 2 Computing lower (ls) and upper (us) normalised value:

xmijk
xlsijk = , (6)
1 + xmijk − xlijk

xrijk
xrsijk = . (7)
1 + xrijk − xmijk

Step 3 Computing total normalised crisp value:

⎡ xlsijk (1 − xijk ) + xrsijk ⎤⎦
xijk = ⎣ . (8)
⎡⎣1 − xlsijk + xrsijk ⎤⎦

Step 4 Computing crisp value:

zijk = min lijk + xijk Δ max
min . (9)

Z ijk is a crisp value of comparison between the criteria or alternatives i and j for the kth
evaluator that should be calculated through CFCS method. Also, zij is the aggregated
crisp value of comparison between the criteria or alternative i and j. After all steps of
CFCS method to aggregate k evaluator’s opinion of decision maker’s equation (10)
should be calculated.

zij = k zij1 × zij2 × ... × zijk . (10)

432 J. Rezaeian and F. Akbari

The final weight of each criteria or alternative can be calculated by equation (11) which
is introduced by Saaty (1980).

(∏ )
1
n n
zij
j =1
Wi = , i, j = 1, 2, ..., n. (11)

∑ (∏ z )
1
n n n
ij
i =1 j =1

where ‘n’ is the number of criteria or alternatives in pair-wise comparisons matrix.

4.3 Fuzzy ANP

The AHP has been used for solving the problems that contain both qualitative and
quantitative components by Saaty (1996). Many decision problems cannot be structured
hierarchically when there is dependency between different level of elements and their
interaction between them should be considered for solving problem, for this reason Saaty
(1996) extended AHP method to ANP. In ANP method, problems are dividend into
different clusters that there is outer dependence between them and every cluster includes
various criteria. A general form of the supermatrix introduced by Saaty (1996) to deal
with the interdependence characteristics among alternatives and criteria is illustrated in
Figure 2.
A supermatrix is a partitioned matrix where each section represents the relationship
between two groups of clusters in a network (Lee and Kim, 2000).

Figure 2 The general form of the supermatrix

C1 C2 " Cn
e11 e12 " e1m1 e21 e22 " e2 m2 en1 en 2 " enmn
e11 ⎛ ⎞
e12 ⎜ ⎟
C1 ⎜ W11 W12 " W1n ⎟
# ⎜ ⎟
e1m1 ⎜ ⎟
e11 ⎜ ⎟
⎜ ⎟
e21 ⎜ ⎟
C2 ⎜ W21 W22 " W2 n ⎟
#
W= ⎜ ⎟
e2 m2 ⎜ ⎟
⎜ ⎟
# ⎜ # # # # ⎟
⎜ ⎟
en1 ⎜ ⎟
en 2 ⎜ ⎟
Cn Wn1 Wn 2 " Wnn
# ⎜ ⎟
⎜ ⎟⎟
enmn ⎜⎝ ⎠

Because the real world is actually full of ambiguities and often unclear and hard to
estimate by exact numerical values or in one word is fuzzy, several researches have
combined fuzzy theory with ANP method. Triangular fuzzy numbers are used, since they
 Stock portfolio selection using a hybrid fuzzy approach 433

help the decision maker to make easier decisions (Kaufmann and Gupta, 1988) and they
are used as the membership function, which are illustrated in Table 3.
Table 3 Triangular fuzzy numbers of ANP method

Linguistic scale for Linguistic scale for Triangular fuzzy Triangular fuzzy
difficulty importance numbers reciprocal numbers
Just equal Just equal (1, 1, 1) (1, 1, 1)
Equally difficult (ED) Equally important (EI) (1/2, 1, 3/2) (2/3, 1, 2)
Weakly more Weakly more (1, 3/2, 2) (1/2, 2/3, 1)
difficult (WMD) important(WMI)
Strongly more Strongly more important (3/2, 2, 5/2) (2/5, 1/2, 2/3)
difficult (SMD) (SMI)
Very strongly more Very strongly more (2, 5/2, 3) (1/3, 2/5, 1/2)
difficult (WSMD) important (WSMI)
Absolutely more Absolutely more (5/2, 3, 7/2) (2/7, 1/3, 2/5)
difficult (AMD) important (AMI)

4.4 DEMATEL
DEMATEL was basically developed to deal with intricacy in local and worldwide
problems effectively (Fontela and Gabus, 1976). It is a comprehensive method for
building and analysing a structural model involving identification of the relations
between causes and effects of complex problems. The method is based on the concept of
pair-wise comparison of decision-making criteria that indicates the effect of the criteria i
on criteria j.
In recent years, the DEMATEL method has become very popular because it is
especially sensible to visualise the structure of complicated causal relationships.
Specifically, the DEMATEL method is based on digraphs, which can separate involved
factors into cause group and effect group. A digraph may typically depict a
communication network, or some domination relation between individuals which
illustrate the directed relationships of sub-systems. The steps of this method are as
follows:
Step 1 Finding the direct-relation matrix
Direct relation matrix shows the degree of effect that each criterion has on other
criteria. In this step, an expert fills such a matrix, i.e., a matrix which shows the
degree of effect criteria i on criteria j. These weights of effect can be expressed
by words such as 0 (no influence), 1 (low influence), 2 (high influence), and
3 (very high influence). This matrix is named the direct-relation matrix that is a
n × n matrix Z. Also, zij in matrix Z indicates the degree of effect criteria i on
criteria j.
Step 2 Normalising the direct-relation matrix
The normalised direct-relation matrix S can be calculated through equations (12)
and (13), all main diagonal elements matrix X are equal to zero (Chiu et al.,
2006).
434 J. Rezaeian and F. Akbari

X = K ×Z (12)
⎛ 1 1 ⎞
k = Min ⎜ , ⎟,
∑ ∑
n n
⎜ Max i =1 zij Max zij ⎟ (13)
⎝ j =1 ⎠
1 ≤ i ≤ n, 1 ≤ j ≤ n,

Step 3 Calculating the total-relation matrix

The eight total-relation matrix T can be derived by using equation (14) as
follows:
∞
T = X + X 2 + X 3 +" = ∑X ,
i =1
i
(14)
when i → ∞ ⇒ S = X ( I − X ) −1.

where I is the n × n identity matrix.

Step 4 Calculating two indexes D+R and D–R for each criterion and drawing causal
diagram. In this step, first we should calculate the sum of row (D) and the sum
of column (R) for each criterion separately. It is clear that D and R are as vector.
Vector D and R can be calculated as equations (15) and (16). Then, the value of
two indexes D + R and D–R for each criterion should be obtained. D + R index
represents ‘prominence’ of each criterion or importance degree of each criterion.
Also, D–R index called ‘relation’ and can divide the criteria into cause group
and an effect group. The positive values D–R indicates that the criterion belongs
to the cause group. Also, the negative value D–R indicates that the criterion
belongs to the effect group. Finally, the causal diagram can be obtained by
drawing (D + R, D–R) points for each criterion. According to T = [sij]n×n i,
j ∈ {1, 2, 3, …, n}, the calculations of D and R are as follows:
n
D= ∑s
j =1
ij ∀i = 1, 2, ..., n, (15)

n
R= ∑s
i =1
ij ∀j = 1, 2, ..., n. (16)

Table 4 Fuzzy comparison scale of DEMATEL method

Linguistic term Linguistic values

Very high influence (VH) (0.75, 1.0, 1.0)
High influence (H) (0.5, 0.75, 1.0)
Low influence (L) (0.25, 0.5, 0.75)
Very low influence (VL) (0, 0.25, 0.5)
No influence (NO) (0, 0, 0.25)

Several researchers have combined fuzzy theory with DEMATEL. Linguistic variables
that are used in fuzzy DEMATEL are shown in Table 4.
 Stock portfolio selection using a hybrid fuzzy approach 435

5 Case study

In this section, an empirical case for portfolio selection of Tehran Stock Exchange is used
to demonstrate that the proposed hybrid method is more appropriate, especially when the
independent and dependent characteristics of criteria exist simultaneously.
In order to formulate this model, the following notations are defined.
Parameters:
C index for criteria
A index for alternative
X normalised direct-relation matrix
T total-relation matrix
S direct-relation matrix
D sum of row total-relation matrix
R sum of column total-relation matrix.
The steps are as follows:
Step 1 Determining the goal of problem
May firms and investors in stock markets need to continuously invest to
profitable growth, development and guarantee the future activities. However,
organisations and investors are often dealt with several superior stocks in order
to implement and have to select one that is better adapted to financial goals. If
decision makers have been an unsuitable selection, then they are confronted with
negative consequences such as losing the benefits. Therefore, selecting a
suitable portfolio have become one of most important decision issues for firms
or international industries or individual investors in order to reduce risk and
maximise the return. Here, we focus specifically on selecting suitable portfolio
at Tehran Stock Exchange.
Step 2 Creating a list of stocks for portfolio selection
In this case, three possible alternatives of stock market areas follow: gold (A1),
bank (A2) and industrial oils (A3) are selected to remain for further evaluation
after preliminary screening.
Step 3 Identification of evaluation criteria
At first, we assembled a set of 20 evaluators in which included staff from the
government sector of stock organisation who are in charge of economic
departments, and academic experts.
According to the proposals of evaluators, a suitable set of evaluation criteria are
selected. Risk, return, liquidity, dividend, suitability, intrinsic value per share,
security, financial ratios, free float, turnover rates, type of industry and market
trend are selected as main criteria for evaluating.
436 J. Rezaeian and F. Akbari

Step 4 Constructing relation network structure

Evaluation network framework is shown in Figure 3.

Figure 3 Evaluation network framework

Goal

Risk (C1) Dividend (C4) Security (C7) Turnover rate (C10)

Return (C2) Suitability (C5) Financial ratio (C8) Type of industry (C11)

Liquidity (C3) Intrinsic value per share (C6) Free float (C9) Market trend (C12)

Gold (A1) Bank (A2) Industrial oils (A3)

Step 5 Collecting data

In this step, first questionnaires based on ANP and DEMATEL techniques are
designed for collecting data, and then the questionnaires are completed by
experts. The pair-wise comparisons matrices of criteria related to the goal, and
comparison matrices for evaluators of criteria with respect to three alternatives
are attained from a verbal questionnaire filled by 20 different experts in a stock
organisation. The comparison matrix for one evaluator for 12 main criteria with
respect to the overall goal is shown in Table 5.
Table 5 The pair-wise comparisons matrix with respect to the goal for one evaluator

Goal C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12

C1 * I EI EI SMI VSMI WMI SMI VSMI SMI VSMI VSMI
C2 * E EI EI VMI SMI SMI VSMI VSMI VSMI SMI
C3 * IE E SMI EI WMI SMI VSMI VSMI SMI
C4 * EI WMI EI SMI VSMI EI VSMI VSMI
C5 * WMI EI WMI EI EI VSMI WMI
C6 * EI
C7 SMI * SMI SMI VSMI VSMI SMI
C8 WMI * EI WMI EI
C9 * EI EI EI
C10 WMI *
C11 EI WMI * EI
C12 EI WMI WMI *
 Stock portfolio selection using a hybrid fuzzy approach 437

Table 6 The fuzzy pair-wise comparisons with respect to the goal for one evaluator

Goal C1 C2 C3
C1 * * * 1 1 1 0.5 1 1.5
C2 1 1 1 * * * 1 1 1
C3 0.666 1 2 1 1 1 * * *
C4 0.666 1 2 0.666 1 2 0.666 1 2
C5 0.4 0.5 0.666 0.666 1 2 1 1 1
C6 0.333 0.4 0.5 0.333 0.4 0.5 0.4 0.5 0.666
C7 0.5 0.666 1 0.4 0.5 0.666 0.666 1 2
C8 0.4 0.5 0.666 0.4 0.5 0.666 0.5 0.666 1
C9 0.333 0.4 0.5 0.333 0.4 0.5 0.4 0.5 0.666
C10 0.4 0.5 0.666 0.333 0.4 0.5 0.333 0.4 0.5
C11 0.333 0.4 0.5 0.333 0.4 0.5 0.333 0.4 0.5
C12 0.333 0.4 0.5 0.4 0.5 0.666 0.4 0.5 0.666
Goal C4 C5 C6
C1 0.5 1 1.5 1.5 2 2.5 2 2.5 3
C2 0.5 1 1.5 0.5 1 1.5 2 2.5 3
C3 0.5 1 1.5 1 1 1 1.5 2 2.5
C4 * * * 0.5 1 1.5 1 1.5 2
C5 0.666 1 2 * * * 1 1.5 2
C6 0.5 0.666 1 0.5 0.666 1 * * *
C7 0.666 1 2 0.666 1 2 1.5 2 2.5
C8 0.4 0.5 0.666 0.5 0.666 1 1 1.5 2
C9 0.333 0.4 0.5 0.666 1 2 0.666 1 2
C10 0.666 1 2 0.666 1 2 1 1.5 2
C11 0.333 0.4 0.5 0.333 0.4 0.5 0.5 1 1.5
C12 0.333 0.4 0.5 0.5 0.666 1 0.5 1 1.5
Goal C7 C8 C9
C1 1 1.5 2 1.5 2 2.5 2 2.5 3
C2 1.5 2 2.5 1.5 2 2.5 2 2.5 3
C3 0.5 1 1.5 1 1.5 2 1.5 2 2.5
C4 0.5 1 1.5 1.5 2 2.5 2 2.5 3
C5 0.5 1 1.5 1 1.5 2 0.5 1 1.5
C6 0.4 0.5 0.666 0.5 0.666 1 0.5 1 1.5
C7 * * * 1.5 2 2.5 1.5 2 2.5
C8 0.666 1 2 * * * 0.5 1 1.5
C9 0.666 1 2 0.666 1 2 * * *
C10 0.333 0.4 0.5 0.5 0.666 1 0.666 1 2
C11 0.333 0.4 0.5 0.666 1 2 0.666 1 2
C12 0.666 1 2 1 1.5 2 0.666 1 2
438 J. Rezaeian and F. Akbari

Table 6 The fuzzy pair-wise comparisons with respect to the goal for one evaluator
(continued)

Goal C10 C11 C12

C1 1.5 2 2.5 2 2.5 3 2 2.5 3
C2 2 2.5 3 2 2.5 3 1.5 2 2.5
C3 2 2.5 3 2 2.5 3 1.5 2 2.5
C4 0.5 1 1.5 2 2.5 3 2 2.5 3
C5 0.5 1 1.5 2 2.5 3 1 1.5 2
C6 0.5 0.666 1 0.666 1 2 0.666 1 2
C7 2 2.5 3 2 2.5 3 1.5 2 2.5
C8 1 1.5 2 0.5 1 1.5 0.5 0.666 1
C9 0.5 1 1.5 0.5 1 1.5 0.5 1 1.5
C10 * * * 0.5 0.666 1 0.5 0.666 1
C11 1 1.5 2 * * * 0.5 1 1.5
C12 1 1.5 2 0.666 1 2 * * *

Step 6 The results of Step 6 and Steps 10 to 12 are shown in Table 21 and that is named
direct relation matrix.
Step 7 In this study, because of limitation of space, the conversion off or one evaluator
which is applied in Step 5, is shown in Table 6.
Step 8 Table 7 shows defuzzyfication of matrix for one evaluator from Step 7.
Step 9 Aggregation and applying fuzzy ANP for calculating the final weights with
respect to goal and crisp integrated values for three alternatives with respect to
each criterion are illustrated in Tables 8 to 20.
The results Steps 10 to 12 are shown in Table 21 and that is named direct
relation matrix.
Step 13 In this step, the normalised direct-influence matrix S for criteria can be
calculated by equations (12) and (13), (Table 22). The total direct-influence
matrix T for criteria was derived based on equation (14) (Table 23).
This paper uses fuzzy DEMATEL to construct a suitable evaluation network
framework which is included interdependent, dependent and independent
structure. According to the total-relation matrix, we can obtain a useful causal
diagram and evaluation hierarchical/network framework by calculating the
D + R and D–R (Table 24).
Each D + R index represents the ‘prominence’ of each criterion or the
importance degree of each criterion. Also, D–R index is called the ‘relation’ and
can divide the criteria into cause group and effect group. The positive value of
D–R indicates that the criterion belongs to the cause group. Also, the negative
value of D–R indicates that the criterion belongs to the effect group. Finally, the
causal diagram can be obtained by drawing (D + R, D–R) points for each
criterion. The causal diagram is shown in Figure 4.
 Table 7

Goal C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12

C1 1 1 1.028695 1.028695 1.985642 2.464115 1.507168 1.985642 2.464115 1.985642 2.464115 2.464115
C2 1 1 1 1.028695 1.028695 2.464115 1.985642 1.985642 2.464115 2.464115 2.464115 1.985642
C3 1.154344 1 1 1.028695 1 1.985642 1.028695 1.507168 1.985642 2.464115 2.464115 1.985642
C4 1.154344 1.154344 1.154344 1 1.028695 1.507168 1.028695 1.9856416 2.4641147 1.028695 2.464115 2.464115
C5 0.510923 1.154344 1 1.154344 1 1.507168 1.028695 1.507168 1.028695 1.028695 2.464115 1.507168
The final crisp value of one evaluator

C6 0.403929 0.403929 0.510923 0.702676 0.702676 1 0.510923 0.702676 1.028695 0.702676 1.154344 1.154344
C7 0.702676 0.510923 1.154344 1.154344 1.154344 1.985642 1 1.985642 1.985642 2.464115 2.464115 1.985642
C8 0.510923 0.510923 0.702676 0.510923 0.702676 1.507168 1.154344 1 1.028695 1.507168 1.028695 0.702676
C9 0.403929 0.403929 0.510923 0.403929 1.154344 1.154344 1.154344 1.154344 1 1.028695 1.028695 1.028695
C10 0.510923 0.403929 0.403929 1.154344 1.154344 1.507168 0.403929 0.702676 1.154344 1 0.702676 0.702676
C11 0.403929 0.403929 0.403929 0.403929 0.403929 1.028695 0.403929 1.154344 1.154344 1.507168 1 1.028695
Stock portfolio selection using a hybrid fuzzy approach

C12 0.403929 0.510923 0.510923 0.403929 0.702676 1.028695 1.154344 1.507168 1.154344 1.507168 1.154344 1
439
 440

Table 8
respect to goal

Goal C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12 Weights

C1 1 0.7001067 0.3345384 0.4036896 0.5100525 0.5100525 0.4036896 0.4036896 0.4036896 0.7001067 0.3345384 0.7001067 0.036419
C2 1.5125329 1 0.4036896 0.4036896 0.5100525 0.5100525 0.4036896 0.7001067 0.4036896 1.1556276 0.3345384 1 0.0474137
J. Rezaeian and F. Akbari

C3 2.9646363 2.4806019 1 1 1.5125329 2.4806019 1.9965674 1.9965674 1.0284985 2.4806019 1 2.4806019 0.1275024
C4 2.4806019 2.4806019 1 1 1.9965674 1.9965674 1.5125329 1.5125329 1.0284985 2.4806019 1.1556276 2.4806019 0.1201297
C5 1.9965674 1.9965674 0.7001067 0.5100525 1 1 1.0284985 1.1556276 0.7001067 1.5125329 0.5100525 1.9965674 0.0802203
C6 1.9965674 1.9965674 0.4036896 0.5100525 1 1 1.1556276 0.7001067 0.7001067 1.5125329 0.3345384 1.5125329 0.0729165
C7 2.4806019 2.4806019 0.5100525 0.7001067 1.1556276 1.0284985 1 1 1.0284985 1.9965674 1.1556276 1.9965674 0.0940166
C8 2.4806019 1.5125329 0.5100525 0.7001067 1.0284985 1.5125329 1 1 1 1.9965674 1.1556276 1.9965674 0.090379
C9 2.4806019 2.4806019 1.1556276 1.1556276 1.5125329 1.5125329 1.1556276 1 1 1.9965674 1.0284985 2.4806019 0.1078129
C10 1 1.0284985 0.4036896 0.4036896 0.7001067 0.7001067 0.5100525 0.5100525 0.5100525 1 0.3345384 1.5125329 0.0489812
C11 2.9646363 2.9646363 1 1.0284985 1.9965674 2.9646363 1.0284985 1.0284985 1.1556276 2.9646363 1 2.4806019 0.1283874
C12 1.5125329 1 0.4036896 0.4036896 0.5100525 0.7001067 0.5100525 0.5100525 0.4036896 0.7001067 0.4036896 1 0.0458214
Aggregation and final weights and crisp integrated values for 12 main criteria with
 Stock portfolio selection using a hybrid fuzzy approach 441

Table 9 Final weights with respect to C1

C1 A1 A2 A3 Weights
A1 1 1.025 1.30648 0.358556
A2 1.130911 1 1 0.336969
A3 0.828999 1 1 0.304475

Table 10 Final weights with respect to C2

C2 A1 A2 A3 Weights
A1 1 1.025 1.016598 0.325825
A2 1.130911 1 1.147727 0.351218
A3 1.085473 0.929355 1 0.322957

Table 11 Final weights with respect to C3

C3 A1 A2 A3 Weights
A1 1 1.437775 1.482264 0.418274
A2 0.743483 1 1 0.292734
A3 0.708414 1 1 0.288992

Table 12 Final weights with respect to C4

C4 A1 A2 A3 Weights
A1 1 1.025 1.008265 0.324708
A2 1.130911 1 1.30648 0.367969
A3 1.04186 0.828999 1 0.307323

Table 13 Final weights with respect to C5

C5 A1 A2 A3 Weights
A1 1 1.157213 1.016598 0.338235
A2 0.968258 1 1.025 0.318993
A3 1.085473 1.130911 1 0.342772

Table 14 Final weights with respect to C6

C6 A1 A2 A3 Weights
A1 1 1.016598 1.147727 0.34473
A2 1.085473 1 1 0.336139
A3 0.929355 1 1 0.319131

Table 15 Final weights with respect to C7

C7 A1 A2 A3 Weights
A1 1 1.786359 1.489563 0.447559
A2 0.570888 1 1 0.269094
A3 0.707061 1 1 0.283347
442 J. Rezaeian and F. Akbari

Table 16 Final weights with respect to C8

C8 A1 A2 A3 Weights
A1 1 1.157083 1.162435 0.353605
A2 0.972562 1 1.162435 0.333949
A3 0.966561 0.966561 1 0.312445

Table 17 Final weights with respect to C9

C9 A1 A2 A3 Weights
A1 1 1.437775 1.482264 0.418274
A2 0.743483 1 1 0.292734
A3 0.708414 1 1 0.288992

Table 18 Final weights with respect to C10

C10 A1 A2 A3 Weights
A1 1 1.025 1.214496 0.348755
A2 1.130911 1 1.012423 0.338402
A3 0.842478 1.063443 1 0.312843

Table 19 Final weights with respect to each C11

C11 A1 A2 A3 Weights
A1 1 1.024828 1.222725 0.347044
A2 1.138459 1 1.237915 0.36081
A3 0.840264 0.893573 1 0.292146

Table 20 Final weights with respect to C12

C12 A1 A2 A3 Weights
A1 1 1.025 1.511875 0.373463
A2 1.130911 1 1 0.330597
A3 0.802686 1 1 0.295939

Figure 4 The casual diagram between criteria (see online version for colours)
 Table 21

C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12

C1 1 0.3651484 0.7667625 0.1429031 0.6741089 0.3220098 0.4826165 0.4470292 0.0942809 0.5827772 0.0410381 0.2666667
C2 0.2666667 1 0.2839676 0.3033189 0.513928 0.2666667 0.2666667 0.2893966 0.3888387 0.3651484 0.3651484 0.3023911
C3 0.7882399 0.5299445 1 0.2615532 0.6224912 0.5643266 0.4709778 0.6009394 0.1521745 0.8103189 0.1236041 0.6073881
C4 0.1429031 0.515842 0.0622022 1 0.4302321 0.4976572 0.2166006 0.0942809 0.4760319 0.4040198 0.0942809 0.7966985
Aggregated direct relation matrix

C5 0.1759344 0.2456179 0.4153366 0.3429014 1 0.7667625 0.6649116 0.6244013 0.6467946 0.6741089 0.1581157 0.5827772
C6 0.1003977 0.1160734 0.2001159 0.1429031 0.7798711 1 0.5227141 0.4422831 0.6244013 0.8041756 0.3794045 0.6073881
C7 0.1749477 0.1429031 0.2725987 0.1521745 0.7301164 0.7301164 1 0.356289 0.2839676 0.7882399 0.1625446 0.547271
C8 0.4470292 0.1236041 0.3794045 0.1429031 0.6835361 0.7178442 0.7882399 1 0.1620474 0.8330163 0.0847321 0.6908712
C9 0.0662378 0.0437006 0.0410381 0.7026823 0.7379514 0.7178442 0.2950543 0.2893966 1 0.7102228 0.2001159 0.8330163
C10 0.356289 0.2623558 0.4197936 0.2785225 0.5069162 0.6027833 0.6467946 0.7505673 0.5765898 1 0.3701992 0.6224912
C11 0.0871055 0.1521745 0.0454068 0.2839676 0.5356314 0.3888387 0.2623558 0.1284299 0.0559023 0.7505673 1 0.4961348
Stock portfolio selection using a hybrid fuzzy approach

C12 0.2902846 0.0333333 0.0454068 0.4948662 0.7301164 0.6908712 0.4826165 0.6908712 0.7966985 0.8190144 0.3033189 1
443
 444

Table 22

C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12

C1 0.06171 0 0.04731 0.00882 0.04159 0.01987 0.02978 0.02758 0.00582 0.03596 0.00253 0.01645
C2 0.01646 0.0617 0.01752 0.01871 0.03171 0.01645 0.01645 0.01786 0.02399 0.02253 0.02253 0.01866
J. Rezaeian and F. Akbari

C3 0.04864 0.0327 0.0617 0.01614 0.03841 0.03482 0.02906 0.03708 0.00939 0.05 0.00763 0.03748
C4 0.00882 0.03183 0.00384 0.0617 0.02655 0.03071 0.01336 0.00582 0.02937 0.02493 0.00582 0.04916
C5 0.01086 0.01515 0.02563 0.02116 0.0617 0.04731 0.04103 0.03853 0.03991 0.04159 0.00976 0.03596
Normalised direct-influence matrix S

C6 0.0062 0.00716 0.01235 0.00882 0.04812 0.0617 0.03225 0.02729 0.03853 0.04962 0.02341 0.03748
C7 0.0108 0.00882 0.01682 0.00939 0.04505 0.04505 0.0617 0.02198 0.01752 0.04863 0.01003 0.03377
C8 0.02759 0.00763 0.02341 0.00882 0.04217 0.04429 0.04863 0.0617 0.01 0.0514 0.00523 0.04263
C9 0.00409 0.0027 0.00253 0.04336 0.04553 0.04429 0.0182 0.01786 0.0617 0.04382 0.01235 0.0514
C10 0.02199 0.01619 0.0259 0.01718 0.03128 0.03719 0.03991 0.04631 0.03558 0.0617 0.02284 0.03841
C11 0.00538 0.00939 0.0028 0.01752 0.03305 0.02399 0.01619 0.00792 0.00345 0.04631 0.0617 0.03061
C12 0.01791 0.00206 0.0028 0.03053 0.04505 0.04263 0.02978 0.04263 0.04916 0.05053 0.01871 0.0617
 Table 23

C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12 Ri

C1 0.06893 0.05095 0.06206 0.02994 0.03781 0.03194 0.036 0.03893 0.027 0.03596 0.02595 0.04168 0.48715
C2 0.04496 0.03696 0.04905 0.0499 0.04975 0.05489 0.053 0.04918 0.052 0.05095 0.0499 0.05156 0.5921
C3 0.05495 0.03996 0.05305 0.03992 0.04876 0.0519 0.054 0.0666 0.041 0.05095 0.04291 0.05057 0.59457
C4 0.04895 0.04995 0.05205 0.04691 0.04776 0.0479 0.049 0.05635 0.053 0.05295 0.07884 0.0476 0.63126
Total direct influence matrix T

C5 0.03996 0.04695 0.05105 0.0499 0.05274 0.0509 0.048 0.05225 0.055 0.04496 0.03992 0.04661 0.57824
C6 0.05095 0.03297 0.04505 0.04691 0.04776 0.04192 0.049 0.04508 0.049 0.04795 0.0489 0.04661 0.5521
C7 0.02997 0.06094 0.02603 0.07784 0.03383 0.03693 0.03 0.02869 0.043 0.03297 0.02994 0.04209 0.47223
C8 0.06693 0.06793 0.07908 0.04291 0.04378 0.04391 0.042 0.05021 0.036 0.04695 0.03693 0.04561 0.60224
C9 0.04595 0.03497 0.03604 0.06088 0.03582 0.0519 0.046 0.04816 0.063 0.05095 0.0499 0.0585 0.58207
C10 0.04196 0.04096 0.04705 0.04092 0.04975 0.0509 0.058 0.04611 0.044 0.04995 0.03792 0.04661 0.55413
C11 0.05794 0.03596 0.05806 0.03792 0.05473 0.05489 0.055 0.05635 0.057 0.04995 0.05289 0.05454 0.62523
C12 0.04296 0.04795 0.04404 0.04491 0.04279 0.04192 0.05 0.04918 0.041 0.04496 0.03992 0.03768 0.52731
Stock portfolio selection using a hybrid fuzzy approach

Di 0.59441 0.54645 0.60261 0.56886 0.54528 0.5599 0.57 0.58709 0.561 0.55945 0.53392 0.56966
445
446 J. Rezaeian and F. Akbari

Table 24 Calculation D + R and D – R

Ri Di Ri + Di Ri – Di
C1 0.48715 0.59441 1.08156 –0.10726
C2 0.5921 0.54645 1.13855 0.04565
C3 0.60224 0.60261 1.20485 –0.00037
C4 0.63126 0.56886 1.20012 0.0624
C5 0.57824 0.54528 1.12352 0.03296
C6 0.5521 0.5599 1.112 –0.0078
C7 0.55413 0.57 1.12413 –0.01587
C8 0.59457 0.58709 1.18166 0.00748
C9 0.58207 0.561 1.14307 0.02107
C10 0.47223 0.55945 1.03168 –0.08722
C11 0.62523 0.53392 1.15915 0.09131
C12 0.52731 0.56966 1.09697 –0.04235

According to Figure 4, it is identified that C1 (risk), C3 (liquidity), C6 (intrinsic

value per share), C7 (security), C10 (stock turnover ratio) and C12 (market trend)
are in cause group and criteria C2 (stock return), C4 (dividend), C5 (suitability),
C8 (financial ratio), C9 (free float) and C11 (type of industry) are in effect group.
If the decision maker wanted to obtain high benefits in terms of the effect group
factors, it would be necessary to control and pay attention to the cause group
criteria. This is because the cause group criteria denote the meaning of the
influencing criteria, whereas the effect group criteria mark the meaning of the
influenced criteria, in other words, the cause group criteria are difficult to move,
while the effect group criteria are easily moved.
Step 14 By using fuzzy DEMATEL method, the preference relation between the criteria
is constructed and is normalised in Table 25. The normalised total-relation
matrix can be entered to the unweighted supermatrix directly.
By using the results from DEMATEL (Table 26) and the weight of
Tables 8 to 20 the supermatrix can be constructed. Table 26 shows
unweighted supermatrix.
Step 15 In this step, the suitable alternative is selected from gold, industrial oils and
bank after completing supermatrix by using fuzzy ANP technique. The weighted
supermatrix is shown in Table 27. Finally, because of the limited supermatrix,
the global priorities of all the elements (alternatives, criteria) will be obtained
and the results are provided in Table 28.
 Table 25

C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12

C1 0.1159 0.0932 0.1029 0.0526 0.0693 0.0570 0.0631 0.0663 0.0481 0.0642 0.0486 0.0731
Normalising matrix T

C2 0.0756 0.0676 0.0814 0.0877 0.0912 0.0980 0.0929 0.0837 0.0926 0.0910 0.0934 0.0905
C3 0.0924 0.0731 0.0880 0.0701 0.0894 0.0927 0.0947 0.1134 0.0730 0.0910 0.0803 0.0887
C4 0.0823 0.0914 0.0863 0.0824 0.0875 0.0855 0.0859 0.0959 0.0944 0.0946 0.1476 0.0835
C5 0.0672 0.0859 0.0847 0.0877 0.0967 0.0909 0.0842 0.089 0.0980 0.0803 0.0747 0.0818
C6 0.0857 0.0603 0.0747 0.0824 0.0875 0.0748 0.0859 0.0767 0.0873 0.0857 0.0915 0.0818
C7 0.0504 0.1115 0.0432 0.1368 0.0620 0.0659 0.0526 0.0488 0.0766 0.0589 0.0560 0.0738
C8 0.1126 0.1243 0.1312 0.0754 0.0802 0.0784 0.0736 0.0852 0.0641 0.0839 0.0691 0.0800
C9 0.0773 0.0639 0.0598 0.1070 0.0656 0.0927 0.0807 0.0823 0.1123 0.0910 0.0934 0.1026
C10 0.0705 0.0749 0.0780 0.0719 0.0912 0.0909 0.1017 0.0785 0.0784 0.0892 0.0710 0.0818
C11 0.0974 0.06581 0.0963 0.0666 0.100 0.0980 0.0964 0.0959 0.101 0.0892 0.0990 0.0957
Stock portfolio selection using a hybrid fuzzy approach

C12 0.0722 0.0877 0.0730 0.0789 0.0784 0.0748 0.0877 0.0837 0.0730 0.0803 0.0747 0.0661
447
 448

Table 26

C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12 Goal

A1 0.3586 0.3258 0.4183 0.3247 0.3382 0.3447 0.4476 0.3536 0.4183 0.3488 0.3470 0.3735 0.0000
A2 0.3370 0.3512 0.2927 0.3680 0.3190 0.3361 0.2691 0.3339 0.2927 0.3384 0.3608 0.3306 0.0000
A3 0.3045 0.3230 0.2890 0.3073 0.3428 0.3191 0.2833 0.3124 0.2890 0.3128 0.2921 0.2959 0.0000
Unweighted supermatrix

C1 0.1160 0.0932 0.1030 0.0526 0.0693 0.0570 0.0632 0.0663 0.0481 0.0643 0.0486 0.0732 0.0364
J. Rezaeian and F. Akbari

C2 0.0756 0.0676 0.0814 0.0877 0.0912 0.0980 0.0930 0.0838 0.0927 0.0911 0.0935 0.0905 0.0474
C3 0.0924 0.0731 0.0880 0.0702 0.0894 0.0927 0.0947 0.1134 0.0731 0.0911 0.0804 0.0888 0.1275
C4 0.0824 0.0914 0.0864 0.0825 0.0876 0.0856 0.0860 0.0960 0.0945 0.0946 0.1477 0.0836 0.1201
C5 0.0672 0.0859 0.0847 0.0877 0.0967 0.0909 0.0842 0.0890 0.0980 0.0804 0.0748 0.0818 0.0802
C6 0.0857 0.0603 0.0748 0.0825 0.0876 0.0749 0.0860 0.0768 0.0873 0.0857 0.0916 0.0818 0.0729
C7 0.0504 0.1115 0.0432 0.1368 0.0620 0.0660 0.0526 0.0489 0.0766 0.0589 0.0561 0.0739 0.0940
C8 0.1126 0.1243 0.1312 0.0754 0.0803 0.0784 0.0737 0.0855 0.0642 0.0839 0.0692 0.0801 0.0904
C9 0.0773 0.0640 0.0598 0.1070 0.0657 0.0927 0.0807 0.0820 0.1123 0.0911 0.0935 0.1027 0.1078
C10 0.0706 0.0750 0.0781 0.0719 0.0912 0.0909 0.1018 0.0785 0.0784 0.0893 0.0710 0.0818 0.0490
C11 0.0975 0.0658 0.0963 0.0667 0.1004 0.0980 0.0965 0.0960 0.1016 0.0893 0.0991 0.0957 0.1284
C12 0.0723 0.0877 0.0731 0.0789 0.0785 0.0749 0.0877 0.0838 0.0731 0.0804 0.0748 0.0661 0.0458
 Table 27

C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12 Goal

A1 0.1277 0.13967 0.13977 0.03008 0.1112 0.08766 0.13977 0.19355 0.18037 0.09678 0.1305 0.13967 0
A2 0.1214 0.1843 0.1895 0.1743 0.1913 0.1618 0.1762 0.1102 0.1397 0.1786 0.1200 0.1843 0.0000
A3 0.1445 0.1084 0.0965 0.1494 0.1089 0.1253 0.0865 0.0897 0.0871 0.1383 0.1310 0.1084 0.0000
Weighted supermatrix

C1 0.0290 0.0180 0.0290 0.0190 0.0274 0.0275 0.0275 0.0282 0.0285 0.0250 0.0265 0.0273 0.0380
C2 0.0225 0.0185 0.0245 0.0250 0.0249 0.0275 0.0265 0.0246 0.0260 0.0255 0.0250 0.0258 0.0360
C3 0.0275 0.0200 0.0265 0.0200 0.0244 0.0260 0.0270 0.0333 0.0205 0.0255 0.0215 0.0253 0.0410
C4 0.0245 0.0250 0.0260 0.0235 0.0239 0.0240 0.0245 0.0282 0.0265 0.0265 0.0394 0.0238 0.0660
C5 0.0200 0.0235 0.0255 0.0250 0.0264 0.0255 0.0240 0.0261 0.0275 0.0225 0.0200 0.0233 0.0570
C6 0.0255 0.0165 0.0225 0.0235 0.0239 0.0210 0.0245 0.0225 0.0245 0.0240 0.0245 0.0233 0.0620
C7 0.0150 0.0305 0.0130 0.0389 0.0169 0.0185 0.0150 0.0143 0.0215 0.0165 0.0150 0.0211 0.0400
C8 0.0335 0.0340 0.0395 0.0215 0.0219 0.0220 0.0210 0.0251 0.0180 0.0235 0.0185 0.0228 0.0510
C9 0.0230 0.0175 0.0180 0.0304 0.0179 0.0260 0.0230 0.0241 0.0315 0.0255 0.0250 0.0293 0.0280
C10 0.0210 0.0205 0.0235 0.0205 0.0249 0.0255 0.0290 0.0231 0.0220 0.0250 0.0190 0.0233 0.0420
Stock portfolio selection using a hybrid fuzzy approach

C11 0.0345 0.0255 0.0310 0.0150 0.0189 0.0160 0.0180 0.0195 0.0135 0.0180 0.0130 0.0208 0.0550
C12 0.0215 0.0240 0.0220 0.0225 0.0214 0.0210 0.0250 0.0246 0.0205 0.0225 0.0200 0.0188 0.0700
449
 450

Table 28

C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 C12 Goal Weights

A1 0.134 0.134 0.134 0.134 0.134 0.134 0.134 0.134 0.134 0.134 0.134 0.134 0.134 3.000
A2 0.145 0.145 0.145 0.145 0.145 0.145 0.145 0.145 0.145 0.145 0.145 0.145 0.145 4.000
Limited supermatrix

A3 0.116 0.116 0.116 0.116 0.116 0.116 0.116 0.116 0.116 0.116 0.116 0.116 0.116 2.000
C1 0.027 0.027 0.027 0.027 0.027 0.027 0.027 0.027 0.027 0.027 0.027 0.027 0.027 0.027
J. Rezaeian and F. Akbari

C2 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025
C3 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025
C4 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025
C5 0.024 0.024 0.024 0.024 0.024 0.024 0.024 0.024 0.024 0.024 0.024 0.024 0.024 0.024
C6 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023
C7 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019
C8 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023
C9 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.025
C10 0.020 0.020 0.020 0.020 0.020 0.020 0.020 0.020 0.020 0.020 0.020 0.020 0.020 0.020
C11 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019 0.019
C12 0.022 0.022 0.022 0.022 0.022 0.022 0.022 0.022 0.022 0.022 0.022 0.022 0.022 0.022
 Stock portfolio selection using a hybrid fuzzy approach 451

6 Discussion

The primary evaluation included investment consultants and financial experts. The limit
weights of 12 criteria are calculated by ANP in Table 28. It shows that decision makers
are concerned with risk, stock return, liquidity, dividend, free float and security factors.
The factor of risk with 0.14506 score has the highest value and is followed by stock
return, liquidity, stock trading, type of industry with 0.02514, 0.02505, 0.02047, 0.01851
scores, respectively.
According to the data of Table 28, the most important alternatives is bank industry
with the highest priority of 0.14506 among the three alternatives and it is most preferable
prior to expectation among three superiors stock Tehran Stock Exchange and the most
important criterion is C1 (risk) with the highest priority of 0.02698.

7 Conclusions

The portfolio selection process is a method for evaluating and ranking the feasible
alternatives using a multi-criteria decision making technique with the help of linguistic
terms which is very useful to take into uncertainty conditions.
It is hard to say for stock market what portfolio is the best. It actually all
complications are based on the differences of goals, the condition of resources and
capabilities. There is no standardised solution to what alternatives is better, but we can
make the portfolio selection more beneficial and worked out in great detail.
This paper proposed a novel combined approach for portfolio selection which utilised
group decision making process and can be applied any kind of stock exchange. The
proposed model was implemented in Tehran Stock Exchange. While it is believed that
the presented model provides value, there are also further points that can be included. The
combined fuzzy ANP and fuzzy DEMATEL approaches used in this study offered a more
precise and accurate analysis by integrating interdependent relationships within and
among a set of criteria.
Performance evaluation has been done in a case study with three alternatives: gold,
bank industry and industrial oils. The results of the applied methodology were shown the
overall satisfaction of decision makers. It is found that the most and less important
criteria for portfolio selection problem are profitability and flexibility respective is, and
bank industries known as suitable alternative.
However, there are some limitations, such as the assessment scales of the fuzzy ANP
and the DEMATEL are not unified. If the study involves large samples, then the
combined methodology might be too complicated. Therefore, in order to promote and
deepen continuing research in future, it is worthwhile to investigate more studies to
uncover invaluable new study issues. Moreover, the assessment scale is required to
improve its user friendliness in the future.
452 J. Rezaeian and F. Akbari

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