Measuring the relative performance of stock market using TOPSIS

For many years, investors used some basic financial ratios to measure the relative performance of various active industries based on two-digit ISIC classification. However, direct implementation of basic financial figures may not be practical in todayʹs business environment since investors face with different criteria. The proposed model of this paper uses Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) to compare 37 various industries based on different financial figures. We gather the necessary data over the period of 2009-2010 from Tehran Stock Exchange and investigate the data in two stages. In the first stage, we perform fundamental analysis to select the most appropriate firms and the in the second stage, we use TOPSIS to rank selected firms based on different criteria. The results of the study confirm that information and communication technology, which is one of the biggest firms in this exchange is considered as the best option (relative ranking 0.88 in two years) followed by some Cement industry (with relative ranking of 0.26 in 2009 and 0.19 in 2010) and oil refinery units (with relative ranking of 0.23 in 2009 and 0.19 in 2010). The figure also shows that other firms maintain low ratios varied from 0.23 to 0.01. The lowest industry ranking belongs to marine industry.