68. Multi-criteria Decision Making for Evaluating Mutual Funds Investment Strategies

Investors often need to evaluate the investment strategies in terms of numerical values based upon various criteria when making investment. This situation can be regarded as a multiple criteria decision-making (MCDM) problem. This approach is oftentimes the basic assumption in applying hierarchical system for evaluating the strategies of selecting the investment style. We employ the criteria measurements to evaluate investment style. To achieve this objective, first, we employ factor analysis to extract independent common factors from those criteria. Second, we construct the evaluation frame using hierarchical system composed of the above common factors with evaluation criteria and then derive the relative weights with respect to the considered criteria. Third, the synthetic utility value corresponding to each investment style is aggregated by the weights with performance values. Finally, we compare with empirical data and find that the model of MCDM predicts the rate of return.