A new algorithm for mutual funds evaluation based on multiple attribute decision making techniques

Abstract

Purpose

The purpose of this paper is to consider compromise solutions of multiple attribute decision-making methods (TOPSIS, VIKOR, and similarity-based approach) in order to evaluate and rank mutual funds and to compare the capabilities of different approaches based on the different traditional indices of mutual funds assessment. In addition, a new algorithm for ranking mutual funds was proposed subsequently.

Design/methodology/approach

In this research, three groups of indices including general, risk-modified performance evaluation, and risk-modified performance evaluation indices using semivariance were used in the mutual funds assessment, which led to the comparison between selected mutual funds, using three mentioned methods and three different groups of criteria. The results of this comparison were compiled and synthesized with linear assignment method. At the end, an algorithm for decision making and investing in mutual funds for professional and unprofessional investors was proposed.

Findings

Using different methods and different criteria proved that the results of similarity-based approach as a MADM technique have the ability to rank and evaluate mutual funds regardless of the criteria used compared to TOPSIS and VIKOR. Furthermore, the authors propose the algorithm of this research as a new model of mutual funds evaluation which considers a wide range of variables with respect to amateur and professional points of view.

Originality/value

The originality of this paper is threefold: first, different criteria were considered to make the evaluation more comprehensive. Second, four different approaches were used to make the results more authentic. Third, a holistic algorithm with its implication was proposed.

Citation

Alibakhshi, R. and Sadeghi Moghadam, M.R. (2016), "A new algorithm for mutual funds evaluation based on multiple attribute decision making techniques", Kybernetes, Vol. 45 No. 8, pp. 1194-1212. https://doi.org/10.1108/K-10-2015-0256