Analytical Hierarchy Process and Goal Programming Approach for Asset Allocation
- 1 Finance Department, School of Business and Management, University of Quebec, Montreal, Canada
- 2 Business Development Bank of Canada, Montreal, Canada
- 3 School of Commerce and Administration, Laurentian University, Sudbury, Canada
Abstract
Asset allocation in portfolio construction must simultaneously consider market conditions and investors’ specific preferences. Therefore, it is a multi-criteria decision that goes beyond the scope of the two-criteria, mean and variance of the portfolio returns, optimization method that traditionally prevails in the financial literature. This article suggests a procedure that makes integrated asset management possible, based on the Analytic Hierarchy Process combined with a mean variance and goal programming model. We illustrate this procedure with data from Canadian mutual funds over a total period of five years and three months, from September 2002 to November 2007. The results obtained are encouraging, as the portfolios constructed in this manner perform better than the S&P/TSX 60 index, which is the reference portfolio for the Canadian market.
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