Title :
Comparison of normalized Expected Utility-Entropy investment decision model with Second Degree Stochastic Dominance criterion in stock selection?
Author :
Yang, Jiping ; Chen, Xiaoxuan ; Zhang, Lijian
Author_Institution :
Sch. of Econ. & Manage., Beihang Univ., Beijing, China
Abstract :
The normalized Expected Utility-Entropy (EU-E) investment decision model, which is a weighted linear average of normalized expected utility and information entropy, are introduce at first. Then, both normalized EU-E investment decision model and Second Degree Stochastic Dominance (SSD) criterion are used to stock selection among 40 sample stocks of Shenzhen component index to invest and compose portfolios of selected four stocks. It has been concluded that portfolios of stocks selected by normalized EU-E decision model have larger returns with fixed risk than those of stocks selected by SSD criterion under certain kind of risky decision situation. This is a further demonstration that information entropy is a useful measure of uncertainty of the state of nature when taking risky decisions. By comparing the computing processes of these two methods, it is easy for investor to select stocks by using normalized EU-E decision model than by using SSD criterion. Thus, the normalized EU-E investment decision model is a better decision criterion in this kind of investment decision making.
Keywords :
decision making; entropy; investment; stock markets; Shenzhen component index; expected utility-entropy investment decision model; information entropy; normalized expected utility; second degree stochastic dominance criterion; stock selection; Artificial neural networks; Investments; Investment; Normalized EU-E investment decision model; SSD criterion; Stock selection;
Conference_Titel :
Future Information Technology and Management Engineering (FITME), 2010 International Conference on
Conference_Location :
Changzhou
Print_ISBN :
978-1-4244-9087-5
DOI :
10.1109/FITME.2010.5656300