A multiobjective interval portfolio framework for supporting investor’s preferences under different risk assumptions

Abstract

This paper is aimed at presenting a multiobjective interval portfolio framework which considers investment decisions under different risk assumptions. New surrogate problems are obtained for the mean-absolute deviation risk measure based on the concept of necessary subtraction between interval numbers. A proposal for obtaining the efficient portfolio solutions is also suggested, which allows accounting for three types of investment strategies. Indices of robustness have also been computed, which allow assessing the assets which are more often selected irrespective of the investment strategy followed, and regardless of the business cycle contemplated. Results illustrate the trade-off between risk and return, being also consistent with the type of strategy followed by the investor. Overall, we were able to conclude that less prone to risk investors might find the formulation based on the mean-absolute necessary deviation more appealing since it allows reaching, in general, lower volatility of returns.

Keywords:

• Portfolio theory
• multiobjective interval linear portfolio problems
• mean-absolute deviation-risk models

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 On May 29, 2015, the shareholders decided to change the name to PHAROL, SGPS S.A.

2 For e.g. in the case of EDP in the pre-crisis period it corresponds to ((0 + 0+0.2 + 0.158 + 0.217 + 0.27 +  0+0.035 + 0.251)/9) × 100 = 13%.

Additional information

Funding

This work has been supported by the Portuguese Foundation for Science and Technology (FCT) under project grant UID/Multi/00308/2019 and it was also supported by: European Structural and Investment Funds in the FEDER component, through the Operational Competitiveness and internationalisation Programme (COMPETE 2020) [Project No. 006971 (UID/SOC/04011); Funding Reference: POCI-01- 0145-FEDER-006971]; and national funds, through the FCT – Portuguese Foundation for Science and Technology under the project UID/SOC/04011/2013.