The two-stage Approach for Stock Selection and Portfolio Composition (Enriched Promethee Method)

Deciding about portfolio selection and composition are the main challenge of investment institutions. The nature of analysis and effective criteria in industry and company are different. They should rank the industry and companies options with regard to multiple and conflict criteria that they have different weights and priorities. This article seeks to provide two-stage approach for stock selection and portfolio composition. We enriched promethee (compensatory MCDM method) by weight of criteria. Then we used it in intended approach. The expert opinions and objective data used to criteria ranking. An ANP was used to determining weight of criteria that merge in promethee method. After designing we tried to validate our approach with real data. The results show we have 7% (simple mode) and 11% (enriched mode) return more than actual performance. Using of Porter five forces analysis for indentifying and verify industry criteria, to include some indices from corporate governance and technical analysis, weighting the criteria and integrate them in the promethee are our research novelty.